Boy Scout Settlement Opponents Want Bankruptcy Plan Paused for Purdue Appeal

Opponents of the Boy Scouts of America’s plan for a $2.4 billion sex-abuse settlement recently found fresh legal ammunition when the Supreme Court agreed to examine a similar plan drawn up by Purdue Pharma.

Some of the Boy Scouts’ insurers and a small group of sex-abuse victims have renewed calls in federal court to temporarily block the youth group’s chapter 11 plan, saying it shouldn’t advance any further until the Supreme Court weighs in on Purdue’s plan for mass opioid liabilities. Their attempt is the latest example of how the Supreme Court’s decision to hear a challenge to Purdue’s chapter 11 plan is rippling through the bankruptcy system.

The Supreme Court last month said it would examine whether bankruptcy law can be used to resolve creditors claims’ against third parties that aren’t in chapter 11 without the consent of all claimants. Such releases are central to the bankruptcy plans crafted by both the Boy Scouts and Purdue. 

Purdue’s plan would release its Sackler family owners from opioid-related liabilities in return for up to $6 billion in settlement payments. In the Boys Scouts’ plan, local councils and partner organizations of the organization would be shielded from the claims of the sex-abuse claimants.

In court papers filed Friday, the Boy Scouts argued that, unlike the Purdue case, the youth group’s plan can’t be halted as the wheels are already in motion to collect the settlement funds and distribute them to plaintiffs.

Last year, a bankruptcy judge approved the Boy Scouts’ plan to create a settlement trust with roughly $2.4 billion in cash and assets funded by the organization, its local councils, chartered organizations and some of its insurers. It had the support of a majority of the 82,000 sex-abuse claimants and the organization’s biggest insurers.

The lawyers for just over 150 abuse plaintiffs and for a handful of insurers that didn’t reach settlements have tried to stop the reorganization plan from taking effect.

The Supreme Court has set an expedited schedule to hear arguments in the Purdue Pharma appeal in December. The Boy Scouts’ plan should be paused until the high court issues its ruling, the insurers said in court papers filed last month.

Waivers granted to third parties in exchange for financial or other types of contributions have become more prevalent in chapter 11 cases and any limitation on the practice would have broad implications for what companies and other organizations can achieve in bankruptcy. Such waivers frequently show up in cases that involve private-equity-owned companies, with the owners often being shielded from liabilities stemming from their prior financial dealings.

The trust created to compensate the Boy Scouts abuse victims already has collected nearly $1 billion in cash and assets and has spent thousands of hours setting up an electronic portal to process victims’ claims and drawing up questionnaires for victims to apply for compensation, the Boy Scouts said Friday. Pausing the trust’s work is “mechanically impossible” now that the work has started, lawyers and a financial adviser for the Boy Scouts also said in court papers.

Objecting insurers and abuse victims said in their filings it would waste resources if the Boy Scouts continue pursuing a chapter 11 plan that is later deemed invalid by the Supreme Court. They also said their challenge to the youth group’s plan could be rendered moot unless it is paused pending the high court ruling.

So far, the settlement trust hasn’t paid out anything, but last month it opened up the electronic portal to process victims’ claims and set an Oct. 3 deadline for applications for the first payments.

Insurers who settled with the Boy Scouts, including

Write to Soma Biswas at [email protected]