Boy Scouts Says Bankruptcy Plan Is Unaffected By Purdue Ruling

The US Supreme Court’s ruling overturning Purdue Pharma LP’s bankruptcy plan and $6 billion Sackler family settlement should have no effect on the Boy Scouts bankruptcy case, the youth organization said.

The Boy Scouts’ Chapter 11 plan, structured around a historic $2.46 billion sex abuse settlement, was meant to be left intact when the high court ruled in Harrington v. Purdue Pharma that bankruptcy plans can’t force creditors to give up legal claims against nonbankrupt third parties, the nonprofit told the US Court of Appeals for the Third Circuit on Wednesday.

The high court recognized that its June decision doesn’t affect bankruptcy plans like the Boy Scouts’ that have been “substantially consummated” and that satisfy claims against nonbankrupt third parties, the organization said in briefing. It was joined by its nationwide network of local councils and a coalition of 18,000 scouts and their attorneys.

“The Court made both of these qualifications knowing that they distinguish BSA’s plan from Purdue’s,” they said in the brief.

Boy Scouts is fighting challenges over its bankruptcy plan, which went active in April 2023, over features that terminated the rights of roughly 82,000 abuse claimants to sue third parties involved in scouting activities, including the organization’s local councils. The appeals are being fought by 144 former Scouts that voted against the bankruptcy plan.

The Third Circuit last month asked the Boy Scouts and others involved in the appeal process to provide briefing on how the court should consider the case in light of the Purdue ruling. The Supreme Court rejected the OxyContin manufacturer’s plan that would block all opioid abuse claimants from pursuing civil cases against the company’s billionaire owners.

‘Irreversible’ Transactions

The distinct circumstances between the two cases must be appreciated, the youth group said Wednesday. While Purdue’s case had been paused before the Sackler settlement had been paid, the Boy Scouts plan has already been active for 16 months “and many irreversible plan transactions have occurred,” it said.

A victims’ trust established to distribute settlement funds has already paid 6,300 abuse survivors and incurred $71 million in operational costs, the group said. Additionally, local councils have transferred $439 million to the trust and contributed proceeds the sale of 31 real properties, it said.

Calls to overturn the bankruptcy plan “cannot possibly be granted without fatally scrambling the plan and threatening the future of this 114-year-old civic institution,” the nonprofit said.

Further, it would create uncertainty for tens of thousands of abuse survivors “who would likely receive little or no compensation under a future reorganization plan (if one is even possible) or outside of bankruptcy,” it added.

The Mormon Church, which paid into the settlement as a longtime sponsor of scouting activities, also urged the Third Circuit on Wednesday not to apply the Purdue ruling in this case and uphold the abuse settlement plan.

But attorneys representing former scouts that have challenged the bankruptcy plan said in a filing Wednesday that “there is no relevant distinction” with the Purdue plan that was overturned.

“Purdue invalidates the same nonconsensual nondebtor releases that are the ‘cornerstone’ of the Boy Scouts’ reorganization plan and simplifies the pending appeals,” the lawyers said. “The legality of the nonconsensual releases in BSA’s plan is no longer in dispute.”

Further, the Boy Scouts’ plan has not been substantially consummated, as 60% of the assets haven’t been transferred and most of the plan funding is contingent on appeals, they said.

The Boy Scouts is represented by White & Case LLP, Morris Nichols Arsht & Tunnell LLP, and Perkins Coie LLP. The local councils are represented by DLA Piper LLP (US) and Wachtell Lipton Rosen & Katz. The Coalition of Abused Scouts for Justice is represented by Monzack Mersky & Browder PA.

The appealing claimants are represented by Dumas & Vaughn LLC and Gellert Seitz Busenkell & Brown LLC.

The case is In re Boy Scouts of Am., 3d Cir., No. 23-01666, briefs filed 8/7/24.