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Boy Scouts Abuse Deal Attacked for Preventing Future Suits (1)

April 6, 2022, 4:04 PM

The Boy Scouts of America’s sexual abuse compensation fund should be rejected, a small group of victims say, because the proposal has the same legal flaw that ended a similar plan by bankrupt opioid maker Purdue Pharma LP.

The Boy Scouts are trying to manipulate bankruptcy rules to force an end to lawsuits against local scouting councils and related groups that haven’t filed for protection under Chapter 11, victims and other critics are set to argue today in federal court.

Although an overwhelming majority of victims voted in favor of the Boy Scouts’ $2.7 billion compensation fund, lawyers for several dozen abuse survivors will try over the next two days to convince a federal judge to deny the proposal. They will be joined by the U.S. Trustee, a federal watchdog who monitors corporate bankruptcy cases, and several insurance companies.

The critics say the Boy Scouts are the latest organization trying to use an obscure section of the U.S. bankruptcy code to shield non-bankrupt affiliates from lawsuits, a strategy Purdue, Johnson & Johnson, and other big businesses have also employed. Last year, a federal judge in New York threw out Purdue Pharma’s multi-billion dollar compensation fund because it proposed blocking suits against people and entities that didn’t join the drug maker in bankruptcy.

Final Arguments

All sides gathered on Zoom Wednesday morning to make their final arguments for and against what would be the biggest-ever compensation fund for victims of sexual abuse. One of the first issues to come up was the accusation by insurance companies that the fund was put together in bad faith because it favors the interests of plaintiffs lawyers who stand to collect big fees.

“I was underwhelmed with the lack of evidence of bad faith,” U.S. Bankruptcy Judge Laurie Silverstein said. “I didn’t see anything to support the insurers position on this.”

The insurers will have a chance to argue their position later on.

Silverstein has listened to weeks of testimony from abuse experts, financial advisers and insurance specialists about the Boy Scouts’ complex plan to route more than 80,000 abuse claims to the compensation fund instead of allowing them to proceed in court.

Insurers, including American International Group Inc., Liberty Mutual Holding Co. and Travelers Cos., oppose the plan because they claim it may force them to make payments they can’t negotiate, even when allegations are fraudulent.

After the Boy Scouts filed bankruptcy in 2020, victims’ lawyers began an advertising campaign to recruit clients. That helped boost the total number of abuse claims to 82,000 from about 1,400 at the start of the bankruptcy.

Read more: Boy Scout Victim Fund Unfair to Insurers, Companies Argue

The Boy Scouts have spent the last three weeks in federal court in Wilmington, Delaware trying to convince Silverstein to approve the trust fund, which is the central feature of the group’s reorganization plan. Under the proposal, all current abuse cases would be handled by the trust, which has elaborate rules to decide how much each victim should receive.

Purdue Pharma was one in a string of bankruptcies, along with a case filed by a unit of Johnson & Johnson, that caused an uproar among elected officials last year. Purdue tried to end lawsuits against itself and its billionaire owners by creating a compensation fund and requiring all litigation to be routed there. That plan was rejected by a federal judge, sending Purdue back into negotiations with opponents. An appeal is ongoing.

J&J is trying to shed tens of thousands of lawsuits over its iconic baby powder, without putting the consumer health giant itself into bankruptcy. Using an obscure Texas law, J&J shunted billions of dollars in potential legal claims into an isolated subsidiary, which was then put into court protection.

In response, some members of Congress have proposed legislation to curb such practices.

Objecting Insurers

The Boy Scouts’ $2.7 billion trust is funded by the youth organization, some insurers and church groups. Earlier this year, the last major victim groups cut a deal with the Boy Scouts to back the fund. That left a much smaller number of victims and holdout insurers as the main opponents.

The objecting insurers claim their contracts with the Boy Scouts are being rewritten to please victims’ attorneys. Those contracts will be taken over by the trust, which will be dominated by victim advocates, the insurers argue.

The plan is also opposed by the U.S. Trustee, a federal bankruptcy watchdog, which argues that too many groups and individuals are being released from liability in the deal.

The case is Boy Scouts of America, 20-10343, U.S. Bankruptcy Court, District of Delaware (Wilmington).

(Updates with comment from judge in sixth paragraph.)

To contact the reporter on this story:
Steven Church in Wilmington, Delaware at schurch3@bloomberg.net

To contact the editors responsible for this story:
Claire Boston at cboston6@bloomberg.net

Michael B. Marois

© 2022 Bloomberg L.P. All rights reserved. Used with permission.