The ruling leaves questions about the Boy Scouts’ bankruptcy plan

DOVER, Del. (AP) – A Delaware bankruptcy judge approved parts of the Boy Scouts of America reorganization plan, but rejected other provisions, stating in a ruling Friday that the organization has “decisions to make” regarding the plan.

Judge Laurie Selber Silverstein delivered her 281-page ruling months after she concluded a trial in the case. She has indicated that she is willing to give a lecture on status at the request of the Boy Scout attorneys.

The BSA plan proposed creating a $ 2.6 billion fund to compensate tens of thousands of men who claim to have been sexually abused as children involved in Scouting, while maintaining the organization’s financial capacity to continue operating.

The ruling is the latest example of uncertainty in a case that has seen a myriad of twists and turns since the Boy Scouts sought protection from bankruptcy more than two years ago to avoid a flood of lawsuits for alleged child sexual abuse from part of scout leaders and volunteers.

Meanwhile, the cash-strapped BSA spent over $ 327 million on fees and expenses during the bankruptcy and continues to bleed money, endlessly. It is also unclear when any of the 82,000 sexual abuse plaintiffs in 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 sponsorship organizations, to contribute approximately $ 2.6 billion in cash and property to a plaintiff fund. abuse. In exchange for those contributions, those entities would be safe from future lawsuits for scout-related abuse.

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 the BSA insurers argued at the outset that the sheer volume of claims was an indication of fraud and the result of aggressive solicitation of clients by lawyers and profit claims aggregators.

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

Under the reorganization plan, the BSA and its 250 local councils, along with insurance companies and troop sponsorship organizations, would have contributed approximately $ 2.6 billion in cash and property to a fund for sexual abuse victims on minors. In exchange for such contributions, such entities would be released from further liability, which means they could not be sued for abuse claims relating to the Scouts. The plan would also allow abuse seekers to sue local insurance companies and organizations sponsoring troops who fail to make their own deals within one year.

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

Such third party releases, generated by cases of asbestos and product liability, have been criticized as an unconstitutional form of “bankruptcy scam”, in which non-debtor entities obtain advantages by joining a debtor to settle a bankrupt mass tort litigation .

Federal courts in some jurisdictions, including Delaware, have allowed the release of third parties in certain circumstances, while courts in other jurisdictions have rejected them.

Under the plan proposed by the Boy Scouts, insurance companies, local BSA councils and organizations sponsoring the troops would receive an extensive liability waiver that protects them from future sexual abuse lawsuits in exchange for contributing to the compensation fund. victims – or even simply not to oppose the plan.

Some abuse survivors have argued that releasing their claims against non-debtor third parties without their consent would violate their rights to due process. The US bankruptcy trustee, the government’s “watchdog” in Chapter 11 bankruptcies, said such releases are not allowed under the bankruptcy code and that the scope of the proposed releases in the BSA plan, potentially extended to tens of thousands of entities , it was unprecedented.

The plan called for the BSA itself to contribute less than 10% of the proposed liquidation fund, consisting of properties worth approximately $ 80 million, a bill of exchange of $ 80 million and approximately $ 20 million in cash.

Local BSA councils, which run day-to-day operations for the troops, have offered to contribute at least $ 515 million in cash and property and an interest-bearing note of at least $ 100 million. This contribution was conditioned by some protections for local troop sponsorship organizations, known as “chartered organizations”. These organizations, numbering in the tens of thousands, include religious bodies, 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, who have reached agreements requiring them to contribute $ 800 million and $ 787 million respectively. Other insurers agreed to contribute approximately $ 69 million. Former BSA’s largest troop sponsor, The Church of Jesus Christ of Latter-day Saints, would contribute $ 250 million for abuse complaints involving the Mormon Church, while congregations affiliated with the United Methodist Church would contribute $ 30 million. dollars.

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