Legal

Judge frets over 'potential to end' Boy Scouts amid chaotic bankruptcy

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Members of Boy Scout Troop 358 participate in a virtual parade on Inauguration Day, January 20, 2021. Biden Inaugural Committee/Handout via REUTERS

  • Deal without sex abuse survivor support is 'not attractive'
  • Survivors mull competing bankruptcy plan
  • Case could 'devolve into chaos'

(Reuters) - The judge overseeing the Boy Scouts of America’s bankruptcy on Wednesday offered her grim view of the status of the youth organization’s reorganization efforts, which have yet to lead to any support from former scouts who say they were sexually abused by Scouting leaders.

U.S. Bankruptcy Judge Laurie Selber Silverstein in Wilmington, Delaware indicated during a virtual hearing that she is prepared to move quickly on the remainder of the Boy Scouts’ Chapter 11 proceeding, which began in February 2020 in an attempt to resolve nearly 300 sex abuse lawsuits. But she also acknowledged the difficulty of proceeding with the organization's request to begin soliciting votes on its proposed reorganization plan, which includes a settlement of more than 80,000 sex abuse claims, when it has yet to bring in any support from abuse survivors.

“I will say to solicit a plan that has no abuse survivor support is not an attractive option,” Silverstein said. “But neither is engaging in protracted litigation that has the potential to end the Boy Scouts as it currently exists.”

The judge will likely announce her ruling on the motion to begin vote solicitation next week.

The Boy Scouts, represented by White & Case, is at a critical point in its Chapter 11 case. The organization hopes to exit bankruptcy by the end of the summer. But doing so will be difficult without support from survivors and insurers, including insurance companies that believe some of the claims are fraudulent. Meanwhile, the organization’s cash is dwindling as its legal costs, which hit $100 million this year, continue to grow.

Under the proposed plan, the Boy Scouts would establish a trust to be funded by a mix of cash, artwork, insurance policies, and at least $425 million from local councils in exchange for releases against legal actions stemming from sex abuse allegations. One insurer, Hartford Financial Services Group Inc, has said it will contribute $650 million to the fund.

But survivor groups argue that the plan is inadequate, noting that the local councils have not yet committed to the $425 million contribution. Moreover, they said, the Hartford deal is too low and other insurers have yet to indicate how much they’re willing to pay.

The tort claimants’ committee (TCC), which represents sex abuse survivors in the bankruptcy proceeding, has estimated that the sex abuse claims are worth $102.7 billion.

If the organization is unable to rally the support it needs for the proposed settlement, it could switch to a different reorganization strategy that would not include the local council contribution. In that scenario, abuse survivors would be left to pursue their individual sex abuse claims against the local councils rather than split a pot of money under the settlement option.

The Boy Scouts have also asked for an additional 153 days of its exclusive period to file a Chapter 11 plan, meaning no one else can submit a competing proposal during that time. Silverstein will likely rule on that request next week as well.

A lawyer for the TCC, Jim Stang of Pachulski Stang Ziehl & Jones, said his group is ready with its own plan framework if the Boy Scouts’ exclusivity is terminated. Stang said the TCC and other survivor groups could put a competing plan on the docket within two weeks.

Jessica Lauria of White & Case warned at the hearing that if the Boy Scouts are not able to maintain control of the case through the exclusivity extension, the bankruptcy “has a very real potential to devolve into chaos.”

The case is In re Boy Scouts of America, U.S. Bankruptcy Court, District of Delaware, No. 20-10343.

For the Boy Scouts: Jessica Lauria, Michael Andolina, Matthew Linder and Laura Baccash of White & Case; and Derek Abbott and Andrew Remming of Morris, Nichols, Arsht & Tunnell

For Hartford: James Ruggeri, Joshua Weinberg and Michele Backus Konigsberg of Shipman & Goodwin; Philip Anker, Danielle Spinelli and Joel Millar of Wilmer Cutler Pickering Hale and Dorr; and Erin Fay and Gregory Flasser of Bayard

For the official tort claimants' committee: James Stang, Iain Nasatir, John Morris, James O'Neill and John Lucas of Pachulski Stang Ziehl & Jones

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