Closing debate begins in Boy Scouts bankruptcy case

DOVER, Dell (AP) — After a three-week trial, a Delaware judge began hearing closing arguments Wednesday in the Boy Scouts of America bankruptcy case.

Judge Laura Selber Silverstein must decide whether to approve the restructuring plan the BSA has negotiated over the past two years. It would compensate thousands of men who say they were sexually abused as children in Scouting, while allowing the Boy Scouts to continue as an ongoing enterprise.

The Boy Scouts, based in Irving, Texas, filed for bankruptcy protection in February 2020 in an effort to prevent hundreds of individual lawsuits and create a settlement trust for abuse victims.

Although the organization faced 275 lawsuits during that time, more than 82,000 sexual abuse claims have been filed in bankruptcy.

The restructuring plan calls for the Boy Scouts, its 250 local councils, and some insurance companies and military sponsor organizations to contribute some $2.6 billion in cash and property to the compensation fund for abuse victims.

In exchange for those contributions, and the assignment of insurance rights to the indemnity fund, the contributing parties will be released from further liability.

The plan has faced opposition from several non-settlement insurance companies as well as the U.S. bankruptcy trustee, who acts as a watchdog in Chapter 11 cases to ensure compliance with bankruptcy laws. Insurance companies argue that the process of distributing money to abusing claimants would infringe on their rights under the policies issued by them and allow payment of claims that would not win damages in civil lawsuits.

Meanwhile, the trustees have argued that the proposed liability release for non-debtor third parties – including local BSA councils, insurers and military-sponsoring organizations – violates the due process rights of abused claimants and is not authorized under the Bankruptcy Code. Huh.

Wednesday’s arguments did not address those issues but instead developed “good faith” and confidence delivery procedures as appropriate by most proponents to defend the plan. Opponents of the plan will present a counterclaim on Thursday.

Lawyers for the Boy Scouts began Wednesday by acknowledging why the BSA sought bankruptcy protection and explaining the steps it took to improve youth safeguards.

“This is a sad part of Scouting’s past…. Our organization is deeply sorry,” BSA attorney Michael Andolina said of the decades-long child sexual abuse.

The Boys Scouts and its supporters say the judge will have to draw several specific conclusions for the plan to be confirmed. Among them is that the scheme was proposed in good faith, and the procedure for compensation to the victims provides for a fair and equitable settlement of their claims. They are also asking the judge to find out whether the proposed initial claim value for different types of abuse — ranging from penetration to abuse that involves no physical contact — is based on the BSA’s pre-bankruptcy abuse settlement and litigation results and are compatible.

But Silverstein has repeatedly pushed back plan supporters, questioning which provisions of the Bankruptcy Code would apply to the findings he discovered. She noted that she was not being asked to approve a specific claim settlement, as is often done in bankruptcy, and suggested that the arguments of plan proponents include treating claims, which is a separate approval standard. There is a separate issue with

“There is no good way to resolve 82,000 claims, … but what is this trust supposed to do … and why do I have to find that it is consistent, or fair, or equitable?” He asked.

Silverstein also wondered whether she could decline the plan if she felt the BSA’s pre-bankruptcy history of handling abuse claims was not fair or justified.

“I don’t know if any of the settlements that the debtors had reached were fair,” she said. “… I have no facts to make such a discovery.”

Under the plan, the Boys Scouts and its approximately 250 local councils will contribute up to $786 million in cash and property and some insurance rights to victims’ funds. BSA’s two largest insurers, Century Indemnity Company and The Hartford, will contribute $800 million and $787 million, respectively, while other insurers have agreed to contribute approximately $69 million.

The organization’s largest military sponsor, the Church of Jesus Christ of Latter-day Saints, commonly known as the Mormon Church, will contribute $250 million to the church’s claims of abuse. Congregations affiliated with the United Methodist Church have agreed to contribute $30 million.

Abuse claimants will be allowed to sue insurance companies and local military-sponsoring organizations, such as churches and civilian groups, that do not enter into settlements within one year of the reorganization plan taking effect.

As it currently stands, the compensation fund will total more than $2.6 billion, the largest sexual abuse settlement in US history. However, the average recovery per claimant will be much lower than other settlements of sexual abuse scandals involving large numbers of victims.

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