Judge begins key hearing on Boy Scouts bankruptcy plan

DOVER, Del. — A Delaware judge on Tuesday began a key hearing that could determine whether the Boy Scouts of America can emerge from bankruptcy later this year with a reorganization plan that would compensate thousands of men who say they were sexually abused as children.

The Boy Scouts, based in Irving, Texas, sought bankruptcy protection in February 2020, seeking to halt hundreds of individual lawsuits and create a fund for men who say they were molested as children by scoutmasters and others. Although the organization was facing 275 lawsuits at the time, it’s now facing some 82,500 sexual abuse claims in the bankruptcy case.

Judge Laura Selber Silverstein convened the hearing to consider whether a disclosure statement outlining the latest reorganization plan contains sufficient details to ensure that abuse claimants and other creditors can make informed decisions on whether to accept or reject it.

Silverstein must approve the disclosure statement before the Boy Scouts can send out ballots for abuse claimants and other creditors to vote on the plan, which was filed last week.

The hearing is expected to last several days. It began with attorneys arguing over a host of issues, mostly involving the 251 local Boy Scouts councils, which run day-to-day operations of the organization, and chartered organizations such as churches and civic groups that sponsor local troops.

The plan calls for the BSA and local councils to make contributions totaling up to $820 million into a fund for abuse claimants, along with the assignment of certain insurance rights into the fund. In return the local councils and national Boy Scouts organization would be released from further liability for abuse claims.

Attorneys for abuse victims made it clear from the onset of the bankruptcy proceeding that they would go after properties and assets owned by local councils to contribute to a settlement fund. The councils are not debtors in the bankruptcy and are considered by the Boy Scouts to be legally separate entities, even though they share insurance policies and are considered “related parties” in the bankruptcy case.

Critics argued that the disclosure statement needs to contain more details about the restricted and unrestricted assets of each local council, and how those values compare to what each council is proposing to contribute into the fund.

“There’s going to be … a real focus on whether the local councils are putting up enough money,” said Jim Stang, an attorney representing the official committee appointed by the U.S. bankruptcy trustee to represent the best interests of all sexual abuse claimants. “How much do they have and how much are they paying?”

The official committee believes the local councils have the financial ability to contribute “several multiples” of what they are offering.

Critics also said the disclosure statement needs to show the aggregate value of claims against each council, the value of available insurance coverage, and the rights and obligations of the local councils and chartered organizations under those policies.

They also want more information about what abuse claimants might recover if the BSA is liquidated rather than reorganized, as well as the plan’s proposed treatment of sponsoring organizations and their potential exposure to future lawsuits.

“We do think the disclosure statement has a tremendous amount of work to do globally with all of the changes that have occurred in the last week to explain to chartered organizations what’s going on, how their rights are impacted,” said Jeremy Ryan, attorney representing ad hoc committees for the Roman Catholic and United Methodist churches.

Under the plan, a chartered sponsoring organization could get a full release from liability in exchange for assigning its insurance rights and making a significant cash contribution to the fund. An assignment of post-1975 insurance rights, without a financial contribution, would result in a limited release from liability. A sponsoring organization could also refuse to participate and keep its insurance rights, but it would receive no protection from future litigation involving abuse claims.

The new plan includes other significant changes from a previous proposal that was submitted in July. They include settlement agreements involving one of the Boy Scouts’ major insurers, The Hartford, and its former largest troop sponsor, the Church of Jesus Christ of Latter-day Saints, commonly known as the Mormon church.

The Hartford has agreed to pay $787 million into a fund for sexual abuse claimants, and the Mormon church has agreed to contribute $250 million. In exchange, both entities would be released from any further liability involving child sex abuse claims filed by men who said they were molested decades ago.

The official committee, which has estimated the liability exposure of Boy Scouts insurers at more than $100 billion, has described the settlements as “grossly unfair.”