Boy Scouts Battles Bid to Upend Bankruptcy Plan in Third Circuit

The Boy Scouts of America urged a federal appeals court to uphold a record-setting $2.46 billion sex abuse settlement, warning of immense harm to the organization and thousands of abuse survivors if the bankruptcy deal is unwound.

The Boy Scouts’ Chapter 11 plan, which established the largest child sex abuse settlement in US history, was subject to a close inspection Wednesday in the US Court of Appeals for the Third Circuit over features that terminated the rights of roughly 82,000 abuse claimants to sue third parties involved in scouting activities. A panel of judges pressed the lawyers to explain what might happen if the court overturns the plan at this point, questioning whether the court-approved deal would implode as a result.

The plan, which went into effect in 2023 after years of protracted negotiations, has faced fresh scrutiny since June when the US Supreme Court ruled in Harrington v. Purdue Pharma that bankruptcy plans can’t force creditors to give up legal claims against nonbankrupt third parties without their consent. The nonprofit is relying on the Third Circuit to rule that its plan has advanced too far to be unwound and that the deal should be shielded from efforts to change it.

A settlement trust has already paid out some $40 million to at least 10,000 abuse survivors, while the organization has sold off camp sites and other assets to raise funds, Boy Scouts attorney Michael R. Huston of Perkins Coie LLP said during arguments Wednesday.

“There’s no precedent for unwinding a plan of this magnitude, of this complexity,” he said, arguing that bankruptcy law and legal precedent protect reorganization plans that have been substantially consummated.

Speaking for claimants who voted to accept the plan, attorney Evan Smola of Hurley McKenna & Mertz said that rescinding the plan at this point would be excruciating for his clients and thousands of others who were forced to relive trauma that they went through as children decades ago.

“In the survivor community, it would be devastation,” he said. “Those survivors now see an end in sight and it is an end they desperately need.”

Although the vast majority of former scouts who were victimized as children voted to approve the deal, about 150 have argued on appeal that the plan improperly stripped them of their right to sue the organization’s nationwide network of local councils and organizations that traditionally sponsored scouting activities.

Claimants’ attorney Gilion Dumas of Dumas & Vaughn LLC argued Wednesday that the Supreme Court’s ruling against Purdue Pharma’s $6 billion settlement with the company’s Sackler family owners makes the liability releases in the Boy Scouts plan “per se impermissible.” And Boy Scouts hasn’t shown that its plan has been substantially consummated or that targeted relief can’t be provided to former scouts who voted against the proposal, she said.

Attorney Delia Lujan Wolff, representing former scouts who are also pursuing claims against the Catholic diocese in Guam, argued that because a substantial portion of plan funding remains in escrow, it’s not too late to grant relief sought by plan opponents.

Separately, a group of insurance providers with potential liability exceeding $4 billion to the settlement trust, urged the appeals court to modify the plan so that it preserves what they say is a threat to their contractual rights to defend against unsubstantiated or overvalued claims.

The court said it would take all arguments under advisement.

Boy Scouts is represented by White & Case LLP, Morris Nichols Arsht & Tunnell LLP and Perkins Coie LLP.

The case is In re Boy Scouts of America, 3d Cir., No. 23-01666, hearing 11/6/24.