Judge approves major parts of Boy Scouts’ bankruptcy exit plan; pieces remain unresolved

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

A federal bankruptcy judge issued an opinion in the Boy Scouts of America case Friday, approving many portions of the nonprofit’s plan to exit bankruptcy while rejecting others. The ruling creates a path for Scouts to move forward but leaves some issues unresolved.

Judge Laurie Selber Silverstein said in her conclusion that the youth organization has decisions to make regarding its plan for reorganization and may need time to determine how to proceed.

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

Central to the settlement is a nearly $2.7 billion trust fund for survivors. In return, Scouts and local councils, troops sponsors and insurance companies who contributed to it could no longer be sued for past abuse.   

Following months of contention, a February deal received overwhelming survivor support. The deal included updates to Scout policies designed to prevent abuse and more options for survivors to seek payment for their claims, including being able to sue insurers and troop sponsors who don’t contribute to the trust within a  year. 

A few survivors, insurance companies and the U.S. Trustee objected to the plan. The trustee, who serves as a government watchdog over bankruptcy cases, argued the liability releases were unconstitutional and violate bankruptcy code. 

Some insurance companies argued the plan would force them to pay survivors more than their policies cover, including for older claims that would otherwise be barred in some states.   

The ruling comes more than two years after Boy Scouts filed for bankruptcy protection. At the time, Scouts said it faced 275 existing abuse lawsuits and up to 1,400 additional claims. Months of proceedings proved that a gross underestimate.  

The case was record-setting in many respects. A historic 82,000 plus claims were filed, making it the largest-ever child sex abuse case involving a single national organization. The settlement has been praised as the largest for sexual abuse claims.  

However, the average payout for each survivor may be among the lowest for sexual abuse cases. USA Gymnastics’ reorganization plan was approved in December and included a $380 million settlement. Before expenses for vetting and distribution that would average $760,000 for each of the 500-plus survivors in the case. That compares to about $33,000 under the Scouts’ plan. 

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

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

The escalating cost is one reason Scouts said it’s ready to move past bankruptcy, holding onto enough money to get back to its main business as a youth serving organization. 

Survivors and attorneys have said the same. They’re ready to put the case behind them. 

Settlement payouts still a long way off 

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

Though 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 be required to consult an advisory committee of attorneys who represent survivors. 

As the plan stands, survivors have three options:  

  • Accept an expedited $3,500 that requires minimal documentation and vetting;  
  • See where they fall on a matrix with value ranges based on the type of abuse, which may require additional documentation;  
  • Pursue an independent review process intended to replicate the award they might have received in a civil court case.  

Those who chose the expedited option will have to do little beyond making sure their signature was on their original claim form and signing a release saying they won’t sue the parties who contributed to the trust. 

Claims from survivors who chose the matrix option will be reviewed by Houser and her team. They will look for whether a claimant has named or described their abuser, provided information clearly connecting the abuse to Scouting and identified a date or their approximate age at the time of the abuse – and where it happened. Claims missing any of that information will be dismissed.   

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

The scale 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 negative impact, such as a need for mental health treatment.  

Claims will also be scaled down if the abuse happened in states with restrictive statutes of limitations that prohibit survivors from suing for abuse after a set time. 

For a rape claim filed in Alabama, where child abuse survivors can file lawsuits only until their 25th birthdays or within two years of the abuse, the base range will drop to between $6,000 and $60,000, down from $600,000. For less severe claims, such as touching, the base could fall as low as $750. 

Big winners in the Boy Scouts bankruptcy: Attorneys, who could walk away with $1 billion.

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

A neutral third party selected from a panel of retired judges will make settlement recommendations in those cases. A separate fund will be set up for any recommendations that exceed $1 million.  

Third-party releases and potential for appeal 

The role of local councils has been a point of contention throughout the case. Attorneys for survivors have argued the councils bear responsibility for abuse in many cases, but the court agreed to halt pending lawsuits against the councils during the national organization’s bankruptcy process. 

None of the roughly 250 local councils have filed for bankruptcy. Yet, Scouts argued they are fundamental to the way the organization functions and should be released from liability from the abuse claims in exchange for a collective settlement contribution of $640 million. 

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

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Several insurance companies that hold policies purchased by Scouts have made the same deal, contributing millions to a trust for survivors in return for a liability release.  

Those releases have come under fire in recent years and are at the center of bankruptcy reform legislation pending in Congress. Critics and some experts in the field have cautioned that releases are being exploited by institutions that are seeking the protection bankruptcy affords without having to go through the bankruptcy process. 

In December, a judge in the Purdue Pharma case struck down a proposed settlement, questioning the legality of a  liability release granted to the Sackler family, which owns the OxyContin maker. The U.S. Trustee in the case had long argued against broad protections for the family.  

The Sacklers reached a new deal in March, agreeing to pay as much as $6 billion in exchange for a release from all current and future opioid-related civil lawsuits. That deal is yet to be approved. 

The U.S. Trustee in the Scouts case has raised similar concerns. In his objection to Scouts’ plan, the trustee said the scope of releases in it “is so broad that the universe of parties that will be released, and the universe of parties whose claims will be extinguished, is unknown.” 

During the bankruptcy settlement confirmation hearing, Silverstein asked about an earlier plan that didn’t include releases for local councils and sponsoring organizations.  

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

Attorneys for Scouts and the local councils said that without the releases councils would face a barrage of civil cases, landing some back in bankruptcy court and threatening the future of the national organization. 

They also argued that without the releases, the trust for survivors largely disappears. The national organization doesn’t have enough money left to fund it alone, attorneys said, noting the $100 million it has spent on professional fees in the case since that earlier plan was proposed. 

The Associated Press contributed to this report.  

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