Boy Scouts Is On A Path To Upset Survivors. It Doesn't Have To ...

Before and just after the Boy Scouts of America (BSA) filed chapter 11, I received a few inquiries about the benefits and drawbacks to survivors of BSA's then-potential filing. I generally responded by highlighting that bankruptcy would not necessarily take away survivors' rights to compensation and to have a voice, but could ensure that each survivor received the same percentage compensation for the wrongs done to them. I also noted that the bankruptcy might help survivors come forward, both because they would have to by a certain date and because they would know they would be joining forces with hundreds of other survivors. (See here, here, here.) Both benefits hinged on BSA taking the reorganization process seriously and working to make bankruptcy court a place for survivors to be heard and negotiated with in good faith.

Based on BSA's initial filings, it seems suspect that BSA is planning to do either. Which means that the bankruptcy court must be even more vigilant in stepping up to ensure that survivors' rights and voices do not get washed away in this reorganization.

To understand why BSA is on a path to make survivors very upset, let's take a walk through BSA's informational brief and proposed plan.

BSA reported that approximately 275 lawsuits are pending in state and federal courts across the United States asserting abuse-related claims against BSA. Attorneys for survivors estimate that there are more than 1,400 more survivors with to-be-brought claims. BSA also reported that is has paid out over $150 million for settlements and legal fees between 2017 and 2019. All of which brought BSA to reorganization as a place to assess the universe of claims and determine how to pay survivors equitably, as well as to keep BSA running as a community organization without being crushed by a decades long onslaught of individual cases. Great so far.

BSA's proposed plan contemplates the establishment of a Victims Compensation Trust, which will be funded by insurance proceeds (amount to be determined by negotiations), BSA's assets, and potentially assets from local councils and community organizations (churches, schools) that have partnered with BSA to offer scouting program. BSA claims to have property worth $1.2 billion. The Trust could be relatively well-funded depending on how much of that property's value BSA can put toward the Trust (secured claims disclosure pending) and how much BSA ultimately argues should go into the Trust. Indeed, the information disclosure that comes with bankruptcy is one of the benefits of BSA's reorganization to all survivors. Still good.

The funding of the Trust is one side of the main equation of this reorganization. The other side is how survivors' claims will be treated. There are options, some of which will give survivors more of a voice and others of which will silence survivors. Based on my reading of the disclosures and plan, BSA has chosen every option that has the potential to silence survivors. I'll discuss two here. And I'll save the timing of the case (from the proposed bar date to plan confirmation) for another post.

First, separate from the chapter 11 case, BSA stated that it intends to move all of the state court cases to federal court. And then move all of the federal court cases across the country to one big case in District of Delaware. (Related, see my post and Adam Levitin's post about how BSA made it so it could file in Delaware bankruptcy court.) I have a sneaking suspicion that many survivors have no interest in having their claims litigated all at once in a state far away from where they live. This, of course, is a multi-district litigation issue. It has the potential to destroy survivors' ability to be heard, which is what some may want the most, even more than money. And it has bankruptcy consequences. With all the litigation in one court, BSA can push survivors to settle all at once. Indeed, BSA also has stated that it will move for the immediate appointment of a mediator to reach a global settlement of all survivors' claims. That settlement will be rolled into the reorganization plan and determine the payout percentage from the Trust. It does not have to be this way.

There is a scenario in which the pending and future cases are not consolidated or only some are consolidated. Multiple individual (or groups of) suits can continue for years after plan confirmation. The survivors who really, really want to have the chance to speak to a jury of the peers will have that chance. Other groups of survivors can settle collectively. The benefit of BSA's bankruptcy is that survivors will know who else they can pair (or group) up with, which has the potential to give survivors more leverage in negotiations. The financial disclosures also will help drive settlements and speed up cases -- but they more likely will do so productively.

Under this scenario, with help from BSA, survivors, and other parties, the bankruptcy court, of course, will need to estimate the total value of all the survivors' claims. There exists the chance that rogue juries will award a handful of survivors massive payouts. But there exists an equally likely chance that rogue juries will award a handful of survivors payouts that are much too small. With more than a thousand claims, the extremes could (should) cancel each other out. And even if they do not, and the Trust is underfunded, such as what has happened with asbestos trusts, I'm willing to take that chance in order to give those survivors who want a voice an actual voice. Survivors likely will appreciate that. Survivors are going to be upset about payout almost regardless. There simply is not enough money (if you believe BSA's representations about available assets). But survivors are going to be even more upset if they do not get money or a voice.

Second, BSA's plan contemplates channeling injunctions. These injunctions not only will preclude litigation against BSA, the national organization, it also will roll in and prohibit litigation against local councils and other unaffiliated organizations that survivors have named in their pending suits across the country. In its bankruptcy filings, BSA states that the abuse claims substantively are against BSA, not the local councils and affiliated independent organizations, despite those councils and organizations being named defendants. Conveniently for BSA, the local councils and other organizations own more assets, by value, than BSA. Billions more. Those are assets that survivors could potentially access for payment absent a channeling injunction. What remains to be seen is if and how much the local councils and other organizations will contribute to the Trust. If the channeling injunction survives and the councils and organizations contribute little or nothing to the Trust, survivors should be upset--and appropriately upset. In addition, there are similar issues about voice and getting a day in court as to local councils and other organizations as discussed above about BSA itself. BSA again has set itself on a path to make survivors very upset. (Also, not to be forgotten, there are bankruptcy-law specific issues about the propriety of channeling injunctions and third-party releases.)

What is disheartening about BSA's filing and proposed plan is that reorganization can be productive in circumstances such as BSA's. Done correctly, tort victims can gain more of a collective voice and greater access to information, while allowing the business that hurt them to continue operating such that survivors overall can receive greater payout of their claims. Done correctly, this also can happen without destroying survivors' individual voices. Done correctly, it also can allow the business or non-profit to make amends and show survivors it can and will change its ways. Instead, BSA's filing and plan sets a course of eroding survivors' voice and belief in BSA and thereby the public's view and understanding of the benefits of reorganization. In the #MeToo era, when more businesses (for-profit and non-profit) might contemplate turning to bankruptcy to deal with a wave of similar claims, getting it right in BSA's case becomes even more important.