Ruling leaves questions about Boy Scouts bankruptcy plan

DOVER, Delaware (AP) — A Delaware bankruptcy judge approved parts of the Boy Scouts of America’s reorganization plan but rejected other provisions, saying in a ruling Friday that the organization had “decisions to make.” ” regarding the plan.

Judge Laurie Selber Silverstein released her 281-page ruling, months after concluding a trial in the case. She indicated that she was willing to hold a status conference at the request of Boy Scouts attorneys.

The BSA plan proposed the creation of a $2.6 billion fund to compensate tens of thousands of men who say they were sexually abused as children involved in scouting, while maintaining the financial capacity of the organization to continue to function.

The decision is the latest example of uncertainty in a case that has seen myriad twists and turns since the Boy Scouts filed for bankruptcy protection more than two years ago to avoid a flood of lawsuits alleging sexual abuse of children. children by Scout leaders and volunteers.

Meanwhile, the cash-strapped BSA has spent more than $327 million in fees and expenses in the bankruptcy and continues to bleed cash, with no end in sight. It’s also unclear when any of the 82,000 sexual abuse plaintiffs in the bankruptcy could receive compensation for their abuse.

The plan called for the Irving, Texas-based BSA and its local councils, along with insurance companies and troop-sponsoring organizations, to contribute some $2.6 billion in cash and property to a fund for abuse claimants. In return for these contributions, these entities would be shielded from future lawsuits for scout-related abuses.

When it filed for bankruptcy, the BSA faced about 275 lawsuits and was aware of about 1,400 other potential cases, but more than 82,200 abuse claims were filed in the bankruptcy. Lawyers for BSA insurers argued early on that the sheer volume of claims was an indication of fraud and the result of aggressive customer solicitation by lawyers and for-profit claims aggregators.

While some of those insurers later negotiated settlements for a fraction of the billions of dollars in liability they could face, other insurers continued to oppose the plan. They argued that the procedures for distributing compensation trust funds would violate their contractual rights to contest the claims, set a dangerous precedent for mass tort litigation, and result in grossly inflated payouts of abuse claims, including tens of thousands that would otherwise be banned by the passage of time.

Under the reorganization plan, the BSA and its 250 local councils, along with insurance companies and troop-sponsoring organizations, would contribute some $2.6 billion in cash and property to a fund for victims of child sexual 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. The plan would also allow abuse plaintiffs to sue insurance companies and local troop-sponsoring organizations that don’t reach their own settlements within a year.

In addition to arguments from opposing insurers, the case presented Silverstein with one of the most contentious issues for bankruptcy judges – whether third parties who are not themselves debtors in the bankruptcy can escape future liability. in the tort system by contributing to a Chapter 11 debtor reorganization plan.

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 Boy Scouts’ proposed plan, insurance companies, local BSA councils and troop-sponsoring organizations would receive broad liability waivers protecting them from future sexual abuse lawsuits in exchange for their contribution to the victim compensation fund – or even simply not to oppose the plan.

Some victims of abuse have argued that releasing their claims against non-debtor 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.

The plan called for the BSA itself to contribute less than 10% of the proposed settlement fund, consisting of property valued at approximately $80 million, an $80 million promissory note and approximately $20 million. dollars in cash.

Local BSA councils, which manage day-to-day troop operations, have offered to contribute at least $515 million in cash and property, as well as an interest-bearing note of at least $100 million. This contribution was conditional on certain protections for local troop-sponsoring organizations, called “chartered organizations.” These organizations, which number in the tens of thousands, include 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. 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, while church-affiliated congregations United Methodist would pay $30 million.

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