Boy Scouts and attorneys for victims of sexual abuse reach a deal to file Chapter 7 bankruptcy with them

Negotiators for the Boy Scouts of America and lawyers for thousands of sexual abuse survivors have struck an eleventh-hour deal to allow the youth group’s reorganization plan to move forward in Bankruptcy Court.

The new plan will not immediately increase the trust fund for 82,000 Scouts who filed claims. But it includes improvements to the claims process and enhancements to the organization’s child protection policies, according to terms of the agreement.

The agreement removes major obstacles to the Scouts’ reorganization plan, but does not guarantee its success. The plan must be confirmed by a federal judge and still faces opposition from some plaintiffs’ attorneys and the U.S. trustee, the bankruptcy system’s watchdog, which has objected to several of its provisions.

The Scouts’ previous offer of a $2.7-billion settlement, touted as the largest of its kind in U.S. history, hit a major snag last month when it failed to garner “overwhelming support” from the nearly 54,000 abuse survivors who voted on it.

The plan needed a “yes” vote of about 75% to be confirmed by U.S. Bankruptcy Judge Laurie Selber Silverstein, who has scheduled a Feb. 22 hearing in Delaware. The approval rate was just 73%.

The initial results capped a contentious voting period in which plaintiffs’ lawyers squared off against each other, with some hailing the settlement offer as the best deal possible and others denouncing it as woefully lacking.

The bankruptcy trustee appointed the official tort claimants panel to represent all victims of the proceedings. It was one of the most vocal opponents.

On Wednesday night, however, the mediator announced in court that all parties had reached an agreement on principle regarding a new deal.

“As a result, the TCC succeeded in reaching its goals of meaningful child protection, independent governance of the Settlement Trust and an enhanced compensation structure for survivors,” said John Humphrey, the committee co-chair.

“With these accomplishments in hand, the TCC recommends that all survivors vote to accept the new and improved plan,” he said.

In a statement Thursday, the Boy Scouts of America said that, with the agreement, “all significant survivor constituencies now support the BSA’s plan.”

“Moving forward, the goal of our financial restructuring process remains the same: We are steadfast in our commitment to equitably compensate survivors and preserve the mission of Scouting,” it said.

Significant opposition remains, however, from some plaintiffs’ attorneys who contend that the deal shortchanges the claimants and the bankruptcy action is unconstitutional because it would provide releases to some of the Scouts’ chartering organizations and other potentially liable parties.

“The new agreement does not change the fundamentally illegal nature of the third-party releases contemplated under this plan,” said Gilion Dumas, a Portland, Ore., attorney whose comment echoed an objection filed last month by the bankruptcy system watchdog.

Dumas claims that the deal should be null.

“The new agreement tries to change things so substantially that I believe the court should require an entirely new solicitation and vote of everyone,” she said.

Timothy Kosnoff is a veteran sex abuse lawyer and a vocal critic of this settlement offer. He stated that the new deal doesn’t change his opinion that Chapter 11 should be scrapped, and the Boy Scouts of America should be liquidated.

“My takeaway is that this thing is still unconfirmable,” he said. “I think it’s a really sad betrayal by even more law firms who held themselves out to be champions of these survivors but who have now capitulated.”

Kosnoff has criticised the Coalition of Abused Scouts for Justice. The Coalition has 18,000 members. According to its affiliated law companies, it represents more than 63,000 clients in bankruptcy. The group supported the initial offer and hailed the new one as “a positive outcome” of intense negotiations.

“The $2.7-billion compensation fund built through the Coalition’s efforts during 2021 isn’t the end,” it said in a statement. “We are committed to working together with our plan partners to further grow the fund, ensure key protections for current and future Scouts and make certain that survivors receive the best and fastest avenue to closure, as well as fair, just and equitable compensation.”

Two years ago, Boy Scouts of America filed bankruptcy protection. The new settlement agreement was reached in the second year. The action put an end to hundreds of lawsuits in order to negotiate a global settlement. It also required that new abuse claims be dealt with through bankruptcy rather than state courts.

A researcher hired by the Scouts to analyze its internal records in 2019 identified 7,819 suspected abusers and 12,254 victims — a fraction of the number who eventually filed claims.

Over 92,000 claims were filed before the court-ordered filing deadline on November 16, 2020. Many were submitted from people who had been recruited by law firms via TV and internet advertising. Later, 10,000 claims were weeded as duplicate filings or invalidated.

The response was overwhelming and far exceeded all expectations. Plaintiffs’ lawyers predicted that the number of claims and the total payouts to settle them would easily eclipse those in the sex abuse scandal that engulfed the U.S. Catholic Church more than a decade ago

At the time, Boy Scout leaders called the massive response “gut-wrenching” and apologized in a statement.

“We are devastated by the number of lives impacted by past abuse in Scouting and moved by the bravery of those who have come forward,” it said. “We are heartbroken that we cannot undo their pain. … We are deeply sorry.”

Boy Scouts’ national organization and local councils have agreed that they will contribute $820 millions to the proposed settlement amount. Nearly $1.6Billion came from two major insurers and $250M from the Church of Jesus Christ of Latter-day Saints.

Even that massive total would yield only “pennies on the dollar” of the claims’ true value, according to opponents, who have contended that it let the Boy Scouts and others of their insurers off the hook for billions more in damages.

According to terms announced Wednesday, more than 12 insurance companies have not yet contributed to the proposed settlement. Claimants could then bring individual lawsuits against them.

Abuse survivors could also now pursue claims against the Scouts’ chartering organizations that have yet to settle, if they are not in active negotiations to do that within a year.

“Our goal was to try to fix the BSA’s proposed plan by making it more fair to survivors. We think we have done that in this new plan,” said Jason Amala, whose law firm represents about 1,125 claimants in the bankruptcy.

Some claimants who voted last month against the initial proposal will have to change their votes to “yes” to reach the 75% threshold, but other lawyers in the case predicted that will happen.

“It’ll clearly go above 75%,” said Paul Mones, Los Angeles attorney who will sit on a seven-member Settlement Trust Advisory Committee overseeing the victims’ fund and the administration of claims.

Mones said the latest proposal includes modifications — such as allowing survivors to sue reticent insurance companies — that probably will add “many hundreds of millions of dollars” to the pool of funds available to abuse survivors.

“This is not a panacea by any means, not even close to what these men suffered,” Mones said. “Many men will be deprived of a full and fulsome hearing in court. However, this is better than what we had before and it gives them a measure of justice considering all the circumstances.”