Boy Scouts Bankruptcy Plan Opponents Appeal to Supreme Court

The Boy Scouts of America’s $2.46 billion child abuse settlement and bankruptcy plan was challenged at the US Supreme Court by a small group of abuse survivors opposed to a broad litigation shield for scouting activity sponsors.

The bankruptcy plan, set up to compensate tens of thousands of adults who were abused as youths by scout masters and volunteers, should be reworked to align with recent Supreme Court precedent, a group of 75 claimants based in Guam said in a petition submitted Tuesday and seen by Bloomberg Law.

The plan has resulted in “the wrongful termination of legal claims belonging to non-consenting sexual-abuse survivors who want nothing more than their day in court,” the group said.

The Chapter 11 plan, which went effective in 2023, forced abuse victims to give up rights to sue the nonprofit’s nationwide network of local councils and partnering organizations, like churches and schools. Those features violate the Supreme Court’s 2024 ruling in Harrington v. Purdue Pharma LP, which outlawed nonconsensual litigation releases for third parties in Chapter 11 plans.

The US Court of Appeals for the Third Circuit in May acknowledged that the Boy Scouts agreement would be impermissible if it was proposed at some point after the Purdue ruling.

However, it said, little can be done “at this late stage” because bankruptcy law insulates key transactions underlying the confirmed plan from being reviewed on appeal.

But the Third Circuit stretched language in the US bankruptcy code too far and its ruling conflicts with holdings from other federal courts of appeal, the petitioning claimants said.

“This ‘extraordinary case’ presents questions of grave importance about the power of federal courts and the shielding of bankruptcy code violations from appellate review,” they said.

Boy Scouts filed for bankruptcy in 2020 to address lawsuits stemming from decades of failure to protect former scouts from sexual predators. The organization, which rebranded this year as Scouting America, spent years in bankruptcy negotiating a complex settlement to compensate victims.

A substantial majority of claimants voted in favor of the plan, but about 150 fought against approval in bankruptcy court and on appeal.

The filing of a high court petition keeps on hold a bankruptcy settlement trust’s ability to access and distribute roughly $1.5 billion in funds being held in escrow for scouting abuse survivors, who have so far been limited to 1.5% recoveries on their claims.

The muted settlement process has become a source of pain for thousands of middle-aged and elderly adult claimants who in many cases have been told their claims are worth tens or hundreds of thousands of dollars.

The petitioning claimants are represented by Subbaraman PLLC and Lujan & Wolff LLP. Boy Scouts is represented by White & Case LLP, Morris Nichols Arsht & Tunnell LLP, and Perkins Coie LLP.