By: Donald L Swanson
Boy Scouts of American achieved a confirmed plan of reorganization in its bankruptcy.
That confirmation is now affirmed on appeal by the U.S. District Court in Delaware[fn. 1]—and is heading to the Third Circuit Court of Appeals for further review.
The District Court’s affirming opinion is 155 pages long and highly detailed. This article tries to summarizes the opinion’s highlights—attempting to make the complex clear.
100% Payment Plan
The core of the opinion, around which most everything else revolves, is this:
- all claims will be paid in full—it’s a 100% payment plan.
Here are some details about the 100% payments:
- the committed amounts to be paid under the plan total more than $3.0 billion—$1.6 billion of which is from mediated settlements with insurance companies on policies of insurance;
- additional funds from non-settling insurance companies could add another $4 billion to the plan payments—bringing the total to more than $7 billion;
- expert evidence establishes the aggregate amount of all Direct abuse claims at $2.5 billion, from a range between $2.4 and $3.6 billion; and
- Direct claims are the abuse claims of individuals, while Indirect claims are of non-debtor organizations, who might also be liable to the Direct abuse victims, for contribution, indemnity, reimbursement or subrogation.
Objections to the Plan
Two groups don’t like the plan and object to it:
- insurers who have not yet settled their policy liabilities; and
- certain Direct abuse claimants.
What follows are highlights of the District Court’s rationale for rejecting the objections.
Releases and Injunctions—A Jurisdiction Argument
The plan releases those who fund the plan and provides injunctions against suing the released parties.
The objecting Direct claimants don’t like these releases and injunctions. Their opposition argument is technical:
- that the Bankruptcy Court does not have jurisdiction to provide such releases and injunctions in a bankruptcy plan.
The District Court (an Article III court) finds that statutory jurisdiction does exist in the form of both “arising in” and “related to” jurisdiction, along with “residual authority,” for granting the releases and injunctions.
The District Court’s jurisdiction analysis is both detailed and lengthy (at 36 to 62 of its opinion) and concludes with a declaration that the plan’s releases and injunctions are necessary, fair and permissible.
Extensive mediation efforts occur throughout the bankruptcy case and result in many, many settlements, each of which is incorporated into the plan and is approved by the plan’s confirmation.
Such approvals are proper and are supported by the evidence.
Bankruptcy Code Confirmation Requirements
The evidence establishes that all plan confirmation requirements in the Bankruptcy Code are satisfied. Specifically:
- the best interests test, in § 1129(a)(7), is satisfied by 100% payment provisions in the plan and by related plan terms;
- Direct claims are properly classified under § 1122(a);
- all Direct claims receive equal treatment, as required by § 1123(a)(4);
- Future claimants (i.e., those with “repressed memory” who are not yet aware of their claims) are adequately provided for in the plan;
- Indirect claims based on rights of contribution, indemnity, reimbursement or subrogation are adequately provided for in the plan;
- the plan is filed in good faith, as required by § 1128(a)(3) (more fully discussed below); and
- there is no evidence of alleged collusion.
The opinion spends many words on the good faith analysis (at 123 to 155). What follows is a summary of that analysis.
The District Court’s opinion makes these starting observations:
- the good faith requirement for confirmation focuses on whether the plan is filed in good faith (not to be confused with whether the Chapter 11 petition is filed in good faith);
- appellants do not challenge a singe finding of fact upon which the Bankruptcy Court based it’s good faith conclusion;
- instead, appellants say the Bankruptcy Court took an erroneous “piecemeal approach” to the good faith evidence (i.e., it focused on the wrong facts) and “missed the forest for the trees”; and
- appellants focus their good faith arguments on allegations of,
- collusion in the plan’s preparation;
- inflation of Direct claim amounts in the plan;
- impropriety forcing insurers to pay the inflated Direct claim amounts; and
- wrongfully abrogating other insurer rights.
The District Court’s good faith analysis includes the following points:
- a bankruptcy court has broad discretion on the good faith issue, and it’s findings are afforded great weight;
- the Bankruptcy Court’s confirmation order:
- properly analyzes the totality of circumstances;
- specifically declares that the plan “has been proposed in good faith”; and
- is supported by an overwhelming volume of undisputed evidence;
- the plan properly balances the interests of creditors and insurers with Debtor’s interest in reorganizing and continuing the pursuit of its charitable purpose;
- a primary purpose of Debtor’s plan is to fully compensate creditors and to do so promptly—this is a bankruptcy-appropriate purpose, especially since many Direct claimants have been waiting 30, 40 or even 50 years for redress;
- there is no evidence to support appellant’s argument about a piecemeal analysis (“missing the forest for the trees”) by the Bankruptcy Court;
- the Bankruptcy Court properly improved the plan by requiring the addition of certain provisions—there is nothing erroneous in doing so;
- there is no such thing as a Chapter 11 confirmation requirement that a plan be “insurance neutral”;
- there is no support in the record for any allegation:
- of collusion or ulterior motives; or
- that the plan inflates claims;
- the plan does not require any insurer to pay inflated future awards; and
- the plan is not designed to leverage insurers toward settlements.
—Claims barred by statutes of Limitations
The District Court rules that plan provisions for paying time-barred claims (i.e., barred by statute of limitations) is not evidence of bad faith. That’s because:
- Debtor paid time barred claims in pre-petition settlements;
- insurers supported those payments;
- states consistently revive abuse claims; and
- courts are reluctant to grant dispositive motions on statute of limitations grounds in abuse of children claims.
District Court’s Concluding Summary
Upon de novo review, the District Court declares:
- “I find no error in the Bankruptcy Court’s determination based on its detailed analysis of objections and ample support in the record.”
A payment in full plan—100%—is impressive.
Why would anyone object?
- Non-settling insurers object because, apparently, they want a different deal—with less-or-no liability; and
- Objecting Direct abuse claimants want, apparently, an opportunity to find that special or run-away jury to ring the bell with an exceptionally-high verdict.
Here’s guessing that the plan confirmation will withstand further appeal.
Footnote 1. The appeal opinion is from the U.S. District Court of Delaware is captioned as In re Boy Scouts of America, Case No’s. 22-1237 et seq. (Issued March 28, 2023; Doc. 150).
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Great summary of a very lengthy and thoughtful opinion.
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