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Boy Scouts to hold back 20% of legal fees until end of bankruptcy

4 minute read

The Boy Scouts of America signage is pictured at its headquarters in Irving, Texas. REUTERS/Tim Sharp

  • Insurer sought holdback to reduce spending during case
  • Boy Scouts lawyers agree to arrangement as deal talks continue

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(Reuters) - Lawyers involved with the Boy Scouts of America bankruptcy have agreed to hold back 20% of their legal fees, which could eventually hit a combined $150 million, until the case concludes.

U.S. Bankruptcy Judge Laurie Selber Silverstein in Wilmington, Delaware signed off on the arrangement, which applies to all law firms that are paid by the Boy Scouts for their work in the Chapter 11 case, during a virtual hearing on Wednesday. The proposal was brought by Boy Scouts insurer Century Indemnity Co, represented by O’Melveny & Myers, as a means of scaling back spending until the bankruptcy, which began in February 2020 to address hundreds of sex abuse lawsuits, wraps up.

The Boy Scouts pay for not only the organization's own legal team but those representing committees of tort claimants and unsecured creditors.

Lawyers for the Boy Scouts at White & Case agreed to the proposal, which modifies the prior fee procedures that held back payments on the 20% until the end of each quarter, rather than the end of the case. However, they asked the judge to let them create a reserve account where the remaining 20% would be placed and released upon an order from the court at the conclusion of the case. Silverstein denied that request, saying she doesn’t believe it’s necessary.

“The Boy Scouts can figure out how to account for this appropriately in their books and records but I’m not going to order a reserve,” she said.

Century requested the holdback until the end of the case so that the judge can then "assess proportionality and reasonableness of the fees charged," according to its motion.

The amount of the legal fees being accrued in the Boy Scouts bankruptcy has been an area of concern raised by both the attorneys themselves and the judge throughout the case. Silverstein called the fees “staggering” in March.

While the cost of the Boy Scouts' bankruptcy would not be unusual in a large, corporate Chapter 11 case, the youth organization’s status as a non-profit means they pose a much greater financial burden than they would to a typical for-profit debtor. In addition to paying its own lawyers and financial advisors, the organization pays for lawyers for its tort claimants' committee, which represents abuse survivors, and its unsecured creditors' committee. Pachulski Stang Ziehl & Jones represents the tort committee while Kramer Levin Naftalis & Frankel represents the creditors' committee.

The Boy Scouts recently reached a deal with groups representing around 60,000 sex abuse survivors that it hopes will bring the bankruptcy proceeding to a close soon. Under the settlement, the national organization and more than 250 local councils will contribute $850 million to a trust for distribution to the claimants. Insurers, however, remain opposed to the settlement and have questioned whether all of the claims are legitimate.

A preliminary hearing on the Boy Scouts’ settlement with the survivor groups is scheduled for July 29.

The judge took time during Wednesday’s hearing to acknowledge approximately 2,000 letters that have been sent to her from sex abuse survivors. She said that although she is reading them, she cannot respond to them.

“They are not being ignored, but it would be improper for me to respond to those letters,” she said.

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 and Matthew Linder of White & Case; and Derek Abbott, Andrew Remming, and Paige Topper of Morris, Nichols, Arsht & Tunnell

For Century: Tancred Schiavoni of O’Melveny & Myers; and Stamatios Stamoulis of Stamoulis & Weinblatt

Read more:

Boy Scouts insurers secure more time to build settlement opposition

Boy Scouts reach $850 million settlement with sex abuse victims

Boy Scouts judge bemoans ‘staggering’ legal fees

Reporting by Maria Chutchian

Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.

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