Boy Scouts bankruptcy plan in effect; appeals likely go on

DOVER, Del. — The Boys Scouts of America's $2.4 billion bankruptcy reorganization plan took effect Wednesday. But more time will be needed before survivors of child sexual abuse at the hands of Boy Scout leaders and volunteers begin receiving compensation.

The plan became effective when the Third U.S. Circuit Court of Appeals denied a request by the plan's opponents to issue a stay while they appeal a federal district court’s approval of the plan. The denial of the stay means the plan can formally take effect, but opponents are expected to continue to pursue their appeal.

“This is a significant milestone for the BSA as we emerge from a three-year financial restructuring process with a global resolution approved with overwhelming support of more than 85% of the survivors involved in the case,” Boy Scouts CEO and President Roger Mosby said in a prepared statement.

Doug Kennedy, co-chair of the bankruptcy’s official committee of abuse claimants, said survivors can now “take an important step toward a degree of resolution for their abuse.”

The plan allows the Texas-based Boy Scouts to keep operating while compensating tens of thousands of men who say they were sexually abused as children. More than 80,000 men have filed claims. The plan's opponents have argued that the staggering number of claims, when combined with other factors, suggests the bankruptcy process was manipulated.

With the plan taking effect, assets will begin flowing gradually into a settlement trust that will evaluate claims and distribute payments to abuse survivors. Retired Texas federal bankruptcy judge Barbara Houser, who will oversee the trust, can begin hiring advisers, but it likely will be at least several months before any abuse survivors begin receiving payments.

Meanwhile, U.S. Bankruptcy Judge Laurie Selber Silverstein held a hearing Wednesday to consider requests that the Boy Scouts be allowed to pay more than $20 million in legal fees and expenses of attorneys for a coalition of law firms representing those who claim to have been abused. Those law firms are expected to take roughly 40% of any payments to clients from the trust.

Nevertheless, attorneys for the Coalition of Abused Scouts for Justice argued that Silverstein should grant their “relatively modest” request that the Boy Scouts of America pay a portion of their fees because of the “extraordinary contribution” they made in developing a reorganization plan.

The coalition played a dominant role in the bankruptcy, despite the existence of the official committee. Coalition law firms represent nearly 18,000 claimants and are affiliated with more than two dozen law firms that collectively represent more than 60,000 claimants. The plan's opponents have suggested that the huge number of claims was the result of a nationwide marketing effort by personal injury lawyers working with for-profit claims aggregators to drum up clients.

Silverstein in 2021 rejected a previous proposal for the Boy Scouts to pay millions of dollars in fees and expenses of attorneys hired by coalition law firms. The judge noted that any such payment would come out of the pockets of abuse claimants, a concern she reiterated Wednesday.

Silverstein noted that when the coalition was formed, she wanted to know who was funding it. “Is it coming of the claimants' pockets, or is it coming out of the law firms’ pockets?” she recalled asking. “And the answer was, ‘It’s coming out of the law firms’ pockets.' ”

The judge questioned whether the fee request isn't simply a “surcharge” to abuse claimants, because the money would otherwise go to the settlement trust. She suggested that the coalition was essentially a “splinter group” from the official committee, and that its work was duplicative of the committee's work.

“Should their fees be paid when I have a group, an official committee, that is charged and has a fiduciary obligation to the entire survivor constituency? I’m struggling with that,” said Silverstein, who did not immediately rule.

Under the plan, the Boy Scouts of America will contribute less than 10% of the settlement fund. Local Boy Scout councils, which run day-to-day operations for troops, offered to contribute at least $515 million in cash and property, conditioned on certain protections for local troop sponsoring organizations, including religious entities, civic associations and community groups.

The bulk of the compensation fund will come from the Boy Scouts’ two largest insurers, Century Indemnity and The Hartford, which reached settlements calling for them to contribute $800 million and $787 million, respectively. Those amounts represent a fraction of the billions of dollars in potential liability exposure they faced. Smaller insurers agreed to contribute about $69 million.

Other insurers, many of which provided excess coverage, have refused to settle. They contend that the procedures for distributing funds would violate their contractual rights to contest claims, set a dangerous precedent for mass tort litigation, and result in grossly inflated payments.

Under the plan, insurance companies, local Scout councils and troop sponsoring organizations will receive broad liability releases protecting them from future sex abuse lawsuits in exchange for contributing to the compensation fund. Some abuse survivors argue that releasing their claims against those non-debtor third parties without their consent violates their due process rights.

Such third-party releases, spawned by asbestos and product-liability cases, have been criticized as an unconstitutional form of “bankruptcy grifting,” in which non-debtor entities obtain benefits by joining with a debtor to resolve mass-tort litigation in bankruptcy.