Judge OK’s parts of Boy Scouts’ plan to emerge from bankruptcy; problems remain

NOTE: This is a developing story and will be updated.

A federal bankruptcy judge issued an opinion in the Boy Scouts of America case on Friday, approving many parts of the nonprofit’s bankruptcy exit plan while rejecting others. The decision paves the way for scouts to move forward, but leaves some issues unresolved.

Judge Laurie Selber Silverstein said in her finding that the youth organization has decisions to make about its reorganization plan and may need time to work out how to proceed.

The confirmation hearing lasted four weeks this spring as Scouts presented a plan to compensate survivors and rebuild the organization, which faces its lowest enrollment levels since the 1930s.

At the center of the settlement is a nearly $2.7 billion trust fund for survivors. In return, scouts and local councils, troop sponsors and insurance companies that contributed to it could no longer be sued for past abuses.

After months of contention, a February deal received overwhelming support from survivors. The agreement included updates to Scouting policies designed to prevent abuse and more options for survivors to seek payment for their claims, including the ability to sue insurers and troop sponsors who do not contribute to the trust within one year.

A few survivors, insurance companies and the US trustee opposed the plan. The trustee, who serves as the government’s watchdog on bankruptcy cases, argued that the liability waivers were unconstitutional and violated the bankruptcy code.

Some insurance companies argued that the plan would require them to pay survivors more than their policy covered, including for older claims that would otherwise be prohibited in some states.

The decision comes more than two years after the Boy Scouts filed for bankruptcy protection. At the time, Scouts said it was facing 275 existing abuse lawsuits and up to 1,400 additional claims. Months of litigation have proven a gross understatement.

The case broke records in many respects. More than 82,000 historic claims have been filed, making it the largest case of child sexual abuse involving a single national organization. The settlement has been hailed as the most significant for sexual abuse complaints.

However, the average payment for each survivor can be among the lowest for sexual abuse cases. USA Gymnastics’ plan to reorganize was approved in December and included a $380 million settlement. Before verification and distribution expenses, that would average $760,000 for each of the more than 500 survivors of the case. That compares to around $33,000 under the Boy Scouts plan.

The total amount spent on legal and professional fees will also be one for books. The Boy Scouts had spent $266 million at the time of the confirmation hearing in March – more than the $219 million they will pay out to survivors. In total, the lawyers, financial advisors and consultants working on the case could split $1 billion, according to an analysis by USA TODAY.

Settlement details:Which victims of sexual abuse will get a settlement? And how much?

Escalating costs are one of the reasons Scouts said it was ready to weather bankruptcy, retaining enough cash to resume its core business as a youth-serving organization.

Survivors and lawyers said the same thing. They are ready to put the case behind them.

Settlement payments are still a long way off

Survivors who filed claims in the case will have more time to wait for their money.

Although the plan provides a framework for determining individual settlement amounts, the hard work of vetting individual claims has yet to begin.

Retired bankruptcy judge Barbara Houser will oversee the process. She will have to consult an advisory committee of lawyers who represent survivors.

The organization known as the Boy Scouts of America is over a century old.

As the plan currently stands, survivors have three options:

  • Accept an accelerated sum of $3,500 which requires minimal documentation and verification;
  • See where they fit on a matrix with ranges of values ​​based on the type of abuse, which may require additional documentation;
  • Pursue an independent review process intended to replicate the sentence they might have received in a civil case.

Those who chose the expedited option will only need to make sure their signature was on their original claim form and sign a release saying they won’t sue parties who contributed to the trust.

Claims from survivors who have chosen the matrix option will be reviewed by Houser and his team. They will seek to find out whether a claimant has named or described their abuser, provided information clearly linking the abuse to Scouting, and identified a date or approximate age when the abuse happened – and where it happened. Claims missing any of this information will be rejected.

A matrix is ​​essentially a formula that will help determine who gets how much, with six levels ranging from sexual abuse which did not involve touching – assigned a value between $3,500 and $8,500 – to rape, which could reach $2.7 million.

The extent of the abuse will also be considered: payouts may be higher if the abuse was particularly severe or frequent, if the abuser is accused of abusing others, and if the claimant can show impact negative, such as a need for mental health treatment.

Claims will also be reduced if the abuse occurred in states with restrictive statutes of limitations that prohibit survivors from suing for abuse after a specified period.

For a rape complaint filed in Alabama, where child abuse survivors can only sue until their 25th birthday or within two years of the abuse, the base range will fall between $6,000 and $60. $000, versus $600,000. For less serious claims, such as touching, the base could drop to $750.

Big winners from the Boy Scouts bankruptcy:Lawyers, who could walk away with 1 billion dollars.

The final option for claimants to pursue, independent review, was added in the last round of negotiations. It is designed for those who feel they would have received a substantial award from a jury. It requires survivors to pay $20,000 upfront for costs and to prove that Scouts were negligent in their abuse, providing the level of evidence typically seen in trials, including an interview with the survivor and other documents.

A neutral third party chosen from a panel of retired judges will make settlement recommendations in these cases. A separate fund will be created for any recommendation over $1 million.

Third Party Releases and Appeal Opportunities

The role of local councils has been a point of contention throughout the case. Lawyers for the survivors argued that the councils were responsible for the abuses in many cases, but the court agreed to stay pending lawsuits against the councils during the national organization’s bankruptcy process.

None of the approximately 250 local councils has filed for bankruptcy. Still, scouts argued they were fundamental to the running of the organization and should be released from liability for abuse claims in return for a $640 million class settlement contribution.

The same goes for chartered organizations – the religious and civic groups that sponsor Scout troops. The Mormon Church, which for years was the largest chartered organization before it left scouts in 2018, said it would contribute $250 million. A Methodist Church group said it would donate $30 million.

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Several insurance companies that hold policies purchased by Boy Scouts have entered into the same agreement, contributing millions to a trust for survivors in exchange for a waiver of liability.

These releases have been criticized in recent years and are at the center of bankruptcy reform legislation pending in Congress. Critics and some experts in the field have warned that releases are being exploited by institutions seeking the protection afforded by bankruptcy without having to go through the bankruptcy process.

In December, a judge in the Purdue Pharma case overturned a proposed settlement, questioning the legality of a liability waiver granted to the Sackler family, owners of maker OxyContin. The US curator in the case had long opposed broad protections for the family.

The Sacklers reached a new settlement in March, agreeing to pay up to $6 billion in exchange for a release from all current and future opioid-related civil lawsuits. This agreement still needs to be approved.

The US administrator in the Scouts case raised similar concerns. In his objection to the scouts’ plan, the administrator said the scope of releases it contains “is so broad that the universe of parties that will be released and the universe of parties whose claims will be extinguished are unknown.”

The Boy Scout logo is displayed at a Marin Council of the Boy Scouts of America store July 27, 2015 in San Rafael, California.

At the bankruptcy settlement confirmation hearing, Silverstein asked about an earlier plan that did not include releases for local councils and sponsoring organizations.

“The debtors said it was workable, doable,” the judge said. “So why is it necessary to have this elaborate, interconnected, intertwined plan for the Boy Scouts?”

Lawyers for Scouts and local councils said that without the releases, councils would face a deluge of civil cases, some of which would go to bankruptcy court and threaten the future of the national organization.

They also argued that without releases, trust in survivors largely disappears. The national organization no longer has enough money to fund it on its own, the lawyers said, noting the $100 million it has spent in professional fees on the case since that earlier plan was proposed.

The Associated Press contributed to this report.

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