By RANDALL CHASE, Associated Press
DOVER, Delaware (AP) – A Delaware bankruptcy judge has approved portions of Boy Scouts of America’s reorganization plan but denied other provisions, saying in a Friday ruling that the organization has “decisions to make” regarding the plan.
Judge Laurie Selber Silverstein released her 281-page ruling months after a trial in the case concluded. She stated that she was willing to hold a status conference at the request of Boy Scout attorneys.
The BSA’s plan called for the creation of a $2.6 billion fund to compensate tens of thousands of men who say they were sexually abused as children in Scouting, while preserving the organization’s financial ability to continue its operations to continue.
The ruling is the latest example of uncertainty in a case that has seen countless twists and turns since Scouts filed for bankruptcy protection more than two years ago to stave off a spate of lawsuits alleging the sexual abuse of children by Scout leaders and volunteers.
Meanwhile, the ailing BSA has spent more than $327 million in bankruptcy fees and expenses and continues to bleed money with no end in sight. It also remains unclear when any of the 82,000 sex abuse bankruptcy filings could receive compensation for their abuse.
The plan called for the Irving, Texas-based BSA and its local governments, along with insurance companies and troop sponsorship organizations, to contribute approximately $2.6 billion in cash and property to an abuse plaintiffs fund. In exchange for these contributions, these companies would be protected from future lawsuits for abuse related to Scout.
When it filed for bankruptcy, the BSA faced approximately 275 lawsuits filed and was aware of approximately another 1,400 potential cases, but more than 82,200 abuse claims were filed as part of the bankruptcy. Lawyers for BSA insurers argued early on that the sheer volume of claims was an indication of fraud and the result of aggressive solicitation by lawyers and for-profit claims aggregators.
While some of those insurers later negotiated settlements for a fraction of the billions of dollars in liability risks they might face, other insurers continued to resist the plan. They argued that the procedures for distributing funds from the Compensation Trust violated their contractual rights to contest claims, set a dangerous precedent for mass tort claims and would result in grossly inflated payments of abuse claims, including tens of thousands who would otherwise be disfellowshipped over time .
Under the restructuring plan, the BSA and its 250 local councils, along with insurance companies and troop sponsor organizations, would contribute about $2.6 billion in cash and property to a fund for victims of child sexual abuse. In return for these contributions, these companies would be relieved of further liability, meaning they could not be sued for Scout-related abuse claims. The plan would also allow abuse plaintiffs to sue insurance companies and local troop sponsorship organizations that fail to finalize their own settlements within a year.
In addition to the arguments of opposing insurers, the Silverstein case raised one of the most contentious questions for bankruptcy judges — whether third parties who are not themselves bankruptcy debtors can avoid future liability in the tort system by contributing to a debtor’s Chapter 11 reorganization plan.
Such third-party clearances, spawned by asbestos and product liability cases, have been criticized as an unconstitutional form of the “bankruptcy grip,” whereby non-debtor companies gain advantages by joining forces with a debtor to resolve a mass tort dispute in bankruptcy .
Federal courts in some jurisdictions, including Delaware, have permitted third-party disclosure in certain circumstances, while courts in other jurisdictions have prohibited it.
Under the Scouts’ proposed plan, insurance companies, local BSA councils and troop sponsor organizations would be given broad indemnities protecting them from future sexual abuse lawsuits in exchange for contributing to the Victims’ Compensation Fund — or even for not dissenting the plan .
Some abuse survivors have argued that releasing their claims against non-culpable third parties without their consent would violate their rights to due process. The US bankruptcy trustee, the government’s “watchdog” on Chapter 11 bankruptcies, argued that such releases are not permitted under the bankruptcy law and that the scope of the proposed releases in the BSA plan potentially extends to tens of thousands of companies is unprecedented.
The plan called for BSA itself to contribute less than 10% of the proposed settlement fund, which consists of about $80 million in real estate, an $80 million promissory note and about $20 million in cash.
Local BSA councils, which conduct day-to-day operations for the troops, have offered to contribute at least $515 million in cash and property, and a minimum $100 million interest-bearing debenture. This post was subject to certain protections for local force sponsorship organizations known as “Chartered Organizations.” These organizations, which number in the tens of thousands, include religious organizations, civic associations, and community groups.
The bulk of the settlement fund would come from the BSA’s two largest insurers, Century Indemnity and The Hartford, who reached settlements demanding contributions of $800 million and $787 million, respectively. Other insurers agreed to contribute about $69 million. The BSA’s formerly largest troop sponsor, The Church of Jesus Christ of Latter-day Saints, would contribute $250 million to allegations of abuse involving the Mormon Church, while congregations affiliated with the United Methodist Church would contribute $30 million would contribute.
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