By Vince Sullivan | Law360 (July 29, 2022) — A Delaware bankruptcy judge on Friday approved major parts of the Chapter 11 plan proposed by the Boy Scouts of America to deal with more than 80,000 claims of childhood sexual abuse, including the creation of a $2.7 billion settlement fund, but said there were some issues still to be resolved before the plan can be confirmed.
The court approved the creation of a $2.7 billion settlement trust to be funded by contributions from the BSA, its local councils and charter organizations and insurers that signed settlement deals with the debtor. Those entities will be released from future liability related to the sex abuse claims in exchange for their contributions to the trust.
In a 281-page opinion, U.S. Bankruptcy Judge Laurie Selber Silverstein said the releases in favor of nondebtor entities — which have drawn scrutiny in recent years — are fair and appropriate given the contributions of the released parties and that all direct claims for sexual abuse will be satisfied through the monetary contributions and other nonfinancial relief included in the plan.
“This is an extraordinary case crying out for extraordinary solutions,” the opinion said. “Two years of mediation by capable lawyers has yielded a plan supported by the debtors, [the unsecured creditors committee, the tort claimants committee, the future claims representative, the Coalition of Abused Scouts for Justice], the settling insurers and 85.72% of direct abuse claimants. The combination of the monetary and non-monetary aspects of the plan are fair to the holders of abuse claims.”
A $250 million settlement with The Church of Jesus Christ of Latter-day Saints still needs to be revisited, Judge Silverstein noted, because third-party releases proposed to be granted in favor of the church would cover non-scouting-related abuse claims, which the court said goes too far.
The debtor said Friday that the plan is the best possible outcome for the abuse claimants and is glad the court agreed.
“This ruling represents a significant milestone in the financial restructuring of the Boy Scouts of America,” the debtor said in a statement. “The BSA’s proposed plan of reorganization already won overwhelming support from survivors of past abuse in Scouting, with more than 85% voting to approve it. We are pleased that the court recognizes the value of the BSA’s proposed plan of reorganization, and overruled the vast majority of objections to confirmation.”
While the opinion was lengthy, attorneys for Coalition, which represents about 70,000 of the abuse claimants in the case, told Law360 on Friday that the linchpin of the plan — the settlement contributions and associated releases — remained intact.
“The major takeaway is that the vast majority of the capital contributions that will be sent to the trust and distributed to victims were approved by the court,” said Anne Andrews of Andrews & Thornton.
In addition to the financial aspects of the settlement, the Coalition successfully fought for the inclusion of optionality for abuse claimants to pursue recovery outside of the settlement trust. Claimants can opt to bring their claims in the tort system or fight for a higher recovery from the trust via an independent review option that will run a trial-like process with trust-appointed neutrals.
“It should be no surprise that some survivors, more than the monetary compensation, are really interested in presenting their story of what happened to them and what it’s done to their lives,” said Sean T. Higgins of Andrews & Thornton. “As with most of these kinds of cases that involve human tragedy, it’s really important to the survivors that they be given the option to proceed outside of the basic claims process.”
Jason Amala of Pfau Cochran Vertetis Amala PLLC, which represents more than 1,000 abuse claimants in the case, said this optionality is a critical part of the plan.
“The bankruptcy court expressed support regarding the most important aspect of this plan, which is that it gives survivors a choice,” he said in a statement. “They can choose to be done and move on from this often retraumatizing saga, or if they want more compensation, they can choose to do a little more work and possibly receive a lot more compensation.”
Judge Silverstein’s opinion agreed with expert valuation reports presented at the monthlong confirmation trial, which set the value of all abuse claims between $2.4 billion and $3.6 billion. There is insurance coverage of up to $4.4 billion available in the case, meaning direct abuse claims will be satisfied in full, according to an expert valuation.
The plan calls for the settling insurers to make cash contributions to the trust and for the debtor to buy back the coverage policies free and clear of all obligations to the settling insurers.
Other insurance companies declined to participate in the settlements, saying the deals would impair their contractual rights under the policies by removing their ability to defend against abuse claims.
While Judge Silverstein found the bulk of the plan to be fair, acceptable and in compliance with the Bankruptcy Code’s standards, there are facets of the plan she did not approve that require additional discussion among the parties.
In particular, the court declined to adopt findings suggested by the debtor and the Coalition relating to the trust distribution procedures and the treatment of nonsettling insurers’ rights in coverage actions that may commence after the plan is confirmed.
Since the debtor made entry of the findings a condition precedent to confirmation of the plan, Judge Silverstein said the BSA needs to engage in discussion with relevant parties about to proceed. She closed her opinion with a directive to the debtor to schedule a status conference before the court once it decides how it wishes to proceed so an appropriate confirmation order can be entered if necessary.
The debtor did not respond late Friday to a request for comment.
The Boy Scouts of America is represented by Derek C. Abbott, Andrew R. Remming and Paige N. Topper of Morris Nichols Arsht & Tunnell LLP, and Jessica C. Lauria, Michael C. Andolina, Matthew E. Linder, Laura E. Baccash, Andrew F. O’Neill and Blair Warner of White & Case LLP.
The tort claimants committee is represented by James I. Stang, Richard Pachulski, Robert B. Orgel, James E. O’Neill and John W. Lucas of Pachulski Stang Ziehl & Jones LLP.
The Coalition of Abused Scouts for Justice is represented by Rachel B. Mersky of Monzack Mersky & Browder PA, David J. Molton, Eric R. Goodman, Sunni P. Beville and Tristan G. Axelrod of Brown Rudnick LLP, Lawrence S. Robbins of Kramer Levin Naftalis & Frankel LLP, Adam Slater of Slater Slater Schulman LLP and Anne Andrews of Andrews & Thornton.
The U.S. Trustee’s Office is represented by David L. Buchbinder and Hannah Mufson McCollum of the U.S. Department of Justice.
The Roman Catholic ad hoc committee is represented by Jeremy W. Ryan and Aaron H. Stulman of Potter Anderson & Corroon LLP, and Everett Cygal, David Spector, J. Mark Fisher, Neil Lloyd, Daniel Schufreider and Jin Yan of ArentFox Schiff LLP.
The AIG Cos. are represented by Deirdre M. Richards of Fineman Krekstein & Harris PC, Susan N.K. Gummow of Foran Glennon Palandech Ponzi & Rudloff PC, and Michael A. Rosenthal, James Hallowell, Matthew G. Bouslog and Keith R. Martorana of Gibson Dunn & Crutcher LLP.
Other insurers are represented by attorneys at Goldstein & McClintock LLLP, Loeb & Loeb LLP, Smith Katzenstein & Jenkins LLP, and Mound Cotton Wollan & Greengrass LLP, among others.
The case is In re: Boy Scouts of America and Delaware BSA LLC, case number 1:20-bk-10343, in the U.S. Bankruptcy Court for the District of Delaware.
–Editing by Alanna Weissman