Boy Scout Bankruptcy Judge Approves Aspects of Reorganization Plan

Boy scout bankruptcy

On July 29, 2022, months after concluding the trial, U.S. Bankruptcy Court Judge Laurie Selber Silverstein issued a 281-page, complex decision, approving some aspects of a Chapter 11 settlement framework advocated by the Boy Scouts of America but rejecting other parts. The Judge’s ruling leaves open important questions in the case.

Boy Scouts of America, 20-10343, U.S. Bankruptcy Court, District of Delaware (Wilmington).

The Boy Scouts’ reorganization plan called for a $2.7 billion settlement vehicle, funded primarily by its insurers and 250 local councils, to compensate over 82,000 claimants.

Under the plan, the BSA itself would contribute less than 10% of the fund. Most compensation would come from Century Indemnity and The Hartford, its two largest insurers. Local BSA councils would also make a substantial contribution, largely from the sales of land holdings. In exchange, the BSA, its local councils and the settling insurance companies would be released from further liability.

Victims overwhelmingly favored the plan. Some insurers argued that the Judge should reject the fund, claiming bad faith negotiations and unfair rules. A federal watchdog criticized what it called a misuse of the bankruptcy code to shield non-bankrupt affiliates (a strategy used by Purdue, Johnson & Johnson and others). Other critics say that it’s dishonorable for a nonprofit to use the tactic to pay victims less than they would have outside of bankruptcy.

After a trial in Wilmington, Delaware, Judge Silverstein found most of the plan in compliance with the Bankruptcy Code’s standards. The Judge found total liability for abuse claims is likely $2.4 billion to $3.6 billion. Judge Silverstein also noted two years of mediation and the participation of over 85% of claimants in ruling that the Boy Scouts could proceed with initial funding for nearly $2.3 billion of the plan. The Boy Scouts called the plan a “significant milestone in the BSA’s financial restructuring.”

Judge Silverstein did not approve the entire plan, however. The Judge rejected arguments that the settlement was negotiated in bad faith, but she also declined to find the trust distribution procedures fair and equitable and refused to give them final approval. The Judge required adjustments in the plan, as well as stronger measures to spot fraudulent claims in the process.

Liability releases have always been a critical issue in the case – and Judge Silverstein refused to grant the Church of Latter Day Saints, the largest sponsor of Boy Scout troops, a broad third party release from sex abuse claims, in exchange for a proposed $250 million contribution to the fund. According to the Judge, the proposed Mormon settlement, which would include sex abuse claims unrelated the Boy Scouts, “stretches third party releases too far.”

The Boy Scouts filed bankruptcy in February 2020. At the time, it faced 275 filed lawsuits and was aware of another 1,400 cases – but several states had changed laws to allow victims to sue over older allegations. Since then, over 80,000 survivors have come forward. The Boy Scouts have spent $327 million in legal fees, according to the Associated Press.

Judge Silberstein concluded that the Boy Scouts now have “decisions to make” regarding the plan. After the Boy Scouts have had a chance to review the detailed ruling, Judge Silverstein will hold a court hearing on the status of the reorganization.