Sidley Austin LLP had no conflict of interest in representing the Boy Scouts of America in its bankruptcy case despite the law firm’s connection to one of BSA’s insurers, the Third Circuit ruled.
Century Indemnity Co., a Chubb subsidiary, sought to have Sidley Austin disqualified from BSA’s bankruptcy case, arguing that the law firm had previously provided legal counsel to Century in certain reinsurance disputes.
“Because Sidley’s representation of BSA did not prejudice Century, but disqualifying it would have been a significant detriment to BSA, it was well within the Court’s discretion to determine that the drastic remedy of disqualification was unnecessary,” the US Court of Appeals for the Third Circuit wrote, affirming a district court’s earlier decision.
The district court had upheld a similar conclusion by the US Bankruptcy Court for the District of Delaware, triggering Century’s appeal to the Third Circuit.
The bankruptcy court “looked carefully at the specific facts before it and reasonably approved BSA’s retention of Sidley,” the Third Circuit said. “This is nowhere close to an abuse of discretion.”
The Boy Scouts, which filed for Chapter 11 bankruptcy in February 2020 following former scouts’ claims of sexual abuse, has negotiated with Chubb and other insurers for victim payouts.
Sidley is no longer actively involved in the bankruptcy case because the attorneys who represented the Boy Scouts moved to a new firm in September 2020.
“Because Sidley is no longer actively involved in the case, Century argues that disqualification would no longer prejudice BSA,” the Third Circuit said.
But the bankruptcy court’s decision was reviewed “based on the record before it at the time of its decision,” the appeals court said.
Sidley had stopped its work with Century in the weeks before the Boy Scouts filed for bankruptcy in February 2020.
The law firm separated itself from the BSA’s insurance coverage issues and didn’t receive any relevant confidential or privileged information, according to the appeals court’s opinion. Sidley’s work for Century did not affect its ability to work for the Boy Scouts, the court said.
The Boy Scouts retained Sidley in September 2018 to explore restructuring options. It had already hired Haynes and Boone LLP to advise on insurance coverage issues.
In re: Boy Scouts of America, a/k/a BSA; Delaware BSA, LLC, 3d Cir., 21-2035, decision 5/24/22