DUVR, Delaware (AP) — A Delaware bankruptcy judge approved parts of the Boy Scouts of America’s reorganization plan but dismissed other provisions, saying in a ruling Friday that the organization “needs to make a decision” about the plan.
Judge Laurie Selber Silverstein delivered her 281-page ruling months after the case ended. She indicated that she was willing to hold a status conference at the request of Boy Scout lawyers.
The BSA plan proposed a $2.6 billion fund to compensate tens of thousands of men who say they were sexually abused as children while participating in Scouting while maintaining the organization’s financial ability to continue operations.
The decision is just the latest example of uncertainty in a case that has taken many turns since the Boy Scouts filed for bankruptcy protection more than two years ago to prevent a flood of child sexual abuse lawsuits by Scout leaders and volunteers.
Meanwhile, the cash-strapped BSA has spent over $327 million in bankruptcy fees and expenses and continues to lose money with no end in sight. It also remains unclear when any of the 82,000 bankruptcy claimants for sexual assault may 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 about $2.6 billion in cash and property to an abuse whistleblower fund. In exchange for these contributions, these organizations will be protected from future Scout abuse lawsuits.
When it filed for bankruptcy, BSA faced approximately 275 lawsuits filed and was aware of approximately 1,400 potential cases, but more than 82,200 abuse claims were filed during the course of the bankruptcy. Lawyers for BSA insurance companies argued from the outset that the sheer volume of claims was evidence of fraud and was the result of aggressive client recruitment by lawyers and commercial claims aggregators.
While some of these insurers later agreed to settle a share of the billions of dollars of liability they potentially faced, other insurers continued to oppose the plan. They argued that the procedures for distributing funds from the compensation fund would violate their contractual rights to challenge claims, set a dangerous precedent for mass tort claims, and result in grossly inflated payments in abuse claims, including tens of thousands that would otherwise be prohibited by law. the passage of time.
Under the reorganization plan, the BSA and its 250 local councils, along with insurance companies and troop-sponsoring organizations, will contribute about $2.6 billion in cash and property to the Child Sexual Abuse Victims Fund. In exchange for these contributions, these organizations will be released from further liability, which means that they will not be able to sue for abuse related to the Scouts. The plan will also allow whistleblowers to sue insurance companies and local troop-sponsoring organizations that do not enter into their own settlements for one year.
In addition to the arguments of the opposing insurers, the case presented Silverstein with one of the most contentious questions for bankruptcy judges—whether third parties who are not themselves debtors in a bankruptcy case can avoid future liability in the tort system by contributing to debtor’s reorganization plan under Chapter 11. .
Such third-party releases, spawned by asbestos and product liability cases, have been criticized as an unconstitutional form of “bankruptcy fraud,” where non-debtor entities profit by joining the debtor to resolve massive torts in a bankruptcy case.
Federal courts in some jurisdictions, including Delaware, have allowed the release of third parties under certain circumstances, while courts in other jurisdictions have rejected them.
Under the plan proposed by the Boy Scouts, insurance companies, local BSA councils, and troop-sponsoring organizations will receive broad liability waivers protecting them from future sexual assault lawsuits, in exchange for contributions to a victim compensation fund, or even for they just won’t mind the plan. .
Some victims of abuse have argued that waiving their claims against non-debtor third parties without their consent would violate their due process rights. The US bankruptcy trustee, the government’s watchdog in Chapter 11 bankruptcy cases, has argued that such exemptions are not permitted under the bankruptcy code and that the scope of the BSA exemptions offered, potentially covering tens of thousands of legal entities, was unprecedented.
The plan called for the BSA itself to contribute less than 10% of the proposed settlement fund, consisting of approximately $80 million in property, an $80 million promissory note, and approximately $20 million in cash.
BSA local councils, which handle day-to-day operations for the troops, have offered to contribute at least $515 million in cash and property, as well as an interest-bearing note worth at least $100 million. This contribution was conditioned by a certain amount of protection from local troop-sponsoring organizations, known as “registered organizations”. These organizations, numbering in the tens of thousands, include religious entities, civic associations and community groups.
The majority of the compensation fund will come from BSA’s two largest insurers, Century Indemnity and The Hartford, who have reached a settlement asking them to contribute $800 million and $787 million, respectively. Other insurers agreed to contribute about $69 million. The former largest contributor to the BSA troops, The Church of Jesus Christ of Latter-day Saints, will contribute $250 million to abuse claims involving the Mormon Church, while congregations affiliated with the United Methodist Church will contribute $30 million.
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