Sub Rosa Plan Issues Explained (In re Boy Scouts)

Sub rosa plan issues have been around since the earliest days of my bankruptcy practice. Back in those days, unfortunately, I was never quite sure what a sub rosa plan might be.

The dictionary definition of the term, “sub rosa,” is “confidentially; secretly; privately” or “happening or done in secret.” It means, literally, “under the rose” and arises from the ancient use of the rose at meetings as a symbol of the sworn confidence of the participants.

Back in those early days of my practice, all I knew was that “sub rosa” arguments were being made in opposition to proposed sales of assets under § 363(b) of the Bankruptcy Code.

So, it was with interest that I read the explanation of sub rosa issues in the recent Boy Scouts opinion from the U.S. Court of Appeals for the Third Circuit (decided May 13, 2025)—and received illumination on some things I didn’t know.

What follows is an attempt to summarize the Third Circuit’s discussion, in that opinion, of sub rosa plan issues.

Narrow Decision

The Third Circuit’s opinion rejects appellants’ arguments that the sub rosa doctrine should have prevented confirmation of Debtors’ Plan. But in doing so, the Third Circuit emphasizes “the narrowness of our decision” as to the boundaries of so-called “sub rosa” plans.

The Third Circuit’s opinion rejects the use of § 363(b) to effectuate a sub rosa plan by “dictating the terms of a plan.” But then the opinion says that the Boy Scouts case does not involve anything remotely resembling a sub rosa plan.

Other Opinions

The Third Circuit acknowledges that it “has not had occasion to opine on or define the boundaries of a sub rosa plan” but that other circuits and other courts have done so. The Third Circuit’s opinion goes on to identify the following sub rosa opinions it finds persuasive.

–In re Braniff Airways, Inc.

In In re Braniff Airways, Inc., 790 F.2d 935 (5th Cir. 1983), the Fifth Circuit reversed a § 363(b) sale authorization that occurred before a plan had been proposed or a disclosure statement approved. The Bankruptcy Court’s § 363(b) authorization had required:

the future plan to allocate certain assets to certain parties;
creditors to vote portions of their deficiency claims in favor of a future plan; and
the release of claims by all parties against the debtor, its secured creditors and its officers and directors.

The Fifth Circuit concluded, in Braniff, that the putative § 363(b) sale was “in fact a reorganization” and held:

a party “should not be able to short circuit the requirements of Chapter 11 for confirmation of a reorganization plan by establishing the terms of the plan sub rosa in connection with a sale of assets”; and
instead, when a debtor “attempts to specify the terms whereby a reorganization plan is to be adopted,” it “must scale the hurdles erected in Chapter 11.”

–In re Lionel Corp.

In In re Lionel Corp., 722 F.2d 1063 (2d Cir. 1983), the Second Circuit rejected a pre-plan § 363(b) sale of the debtor’s most important asset that effectively swallowed up Chapter 11’s safeguards.

The Second Circuit cited this legal authority:

Czyzewski v. Jevic Holding Corp., 580 U.S. 451, 468 (2017) (holding that the Bankruptcy Code does not permit structured dismissals, which deviate from the absolute priority rule and “circumvent the Code’s procedural safeguards”).

–Bankruptcy & District Court Opinions in Fifth Circuit

The bankruptcy and district courts of the Fifth Circuit have issued opinions acknowledging and applying the sub rosa doctrine to protect the Bankruptcy Code’s procedural safeguards, in such contexts as § 363(b) sales, § 364(d) debtor-in-possession financing, and Rule 9019 settlements.

Here are examples of such opinions.

In re Shubh Hotels Pittsburgh, LLC, 439 B.R. 637, 644–45 (Bankr. W.D. Pa. 2010);
In re Summit Global Logistics, Inc., No. 08-11566, 2008 WL 819934, at *13–14 (Bankr. D.N.J. Mar. 26, 2008); and
In re Capmark Fin. Grp. Inc., 438 B.R. 471, 513–14 (Bankr. D. Del. 2010).

Surmountable Difficulties

“No doubt, differentiating a permissible use of § 363(b) from an invalid one often requires consideration of the substance of proposed transactions,” which can be a difficult task. But:

judges already must conduct similar inquiries in a variety of other contexts; and
we are confident that bankruptcy and district court judges—and ultimately this Court—are eminently capable of:
- policing the bounds of permissible § 363(b) sales; and
- seeing cleverly disguised transactions for what they are.

Examples of courts “policing” such bounds and “seeing cleverly disguised transactions” are:

Debtors and powerful creditors do not qualify as good faith purchasers where they seek to maximize their leverage (In re Hertz Corp., 120 F.4th 1181, 1205 (3d Cir. 2024));
dictating the terms of Chapter 11 plans up front without scaling the hurdles erected by the Bankruptcy Code is impermissible (In re Braniff Airways, 700 F.2d at 940));
the good-faith requirement prevents a debtor from effectively abrogating the creditor protections of Chapter 11 (In re Abbotts Dairies of Pa., Inc., 788 F.2d 143, 150 n.5 (3d Cir. 1986)); and
“Nor are we convinced that an intentional attempt to transact by ‘means forbidden by law’ constitutes good faith by a purchaser.”

Sub Rosa Plan Standards

Courts have crafted various standards to determine what constitutes a sub rosa plan, in such cases as:

In re Iridium Operating LLC, 478 F.3d 452, 466 (2d Cir. 2007);
In re Cajun Elec. Power Co-op., Inc., 119 F.3d 349, 354–55 (5th Cir. 1997);
In re Latam Airlines Grp. S.A., 620 B.R. 722, 813 (Bankr. S.D.N.Y. 2020);
In re Capmark Fin. Grp. Inc., 438 B.R. 471, 513 (Bankr. D. Del. 2010); and
In re Tower Auto. Inc., 241 F.R.D. 162, 168–69 (S.D.N.Y. 2006).

We have no occasion here to endorse any of these standards or articulate one of our own. Today, it is enough to recognize:

that the sub rosa doctrine as an inherent limitation to authorizations under § 363(b);
that our holding should not be taken to cast doubt on the use of § 363(b) to conduct sales of all or substantially all of a debtor’s assets, where doing so does not effectively dictate the terms of an eventual reorganization plan; and
that § 363(b) sales are often, and properly, accomplished through auctions using bidding procedures and stalking-horse bidders approved by the bankruptcy court.

Sub Rosa Doctrine Applied

In this Boy Scouts case, insurers were authorized to buyback their insurance policies. Such authorization is contained in the confirmed Plan and is subject to all of Chapter 11’s procedural protections afforded to creditors. For example:

the policy buyback was included in Debtors’ solicitation and supplemental disclosure statements and was subject to objection at the confirmation hearing;
all creditors entitled to vote on the Plan—including the creditors in Classes 8 and 9, comprising direct and indirect abuse claimants—had adequate notice that the Plan, if confirmed, would authorize the policy buybacks; and
Debtors’ creditors chose to vote in favor of the Plan anyway, including the class of creditors to which appellants belong.

More specifically, plan voting included:

affirmative support from every class of creditors entitled to vote;
Classes 8 and 9 approved the plan with 73.57% and 69.57% of creditors’ votes, respectively; and
after a Plan amendment, claimants in Classes 8 and 9 increased their approving votes to 85.72% and 82.41%, respectively.

Additional Chapter 11 procedural protections for creditors in the Boy Scouts case include:

after 39 parties raised objections to the Plan, the Bankruptcy Court held a 22-day-long confirmation hearing—devoting 16 days to receiving evidence, consisting of testimony from 26 witnesses and over 1,000 exhibits, and 6 days to oral argument;
such hearing resulted in a 269-page confirmation opinion that diligently steps through § 1129’s confirmation requirements and approves much, but not all, of the Debtors’ Plan;
then, the Bankruptcy Court held two more hearings; and
then, the Bankruptcy Court issued supplemental findings of fact and conclusions of law and the Confirmation Order confirming the Plan.

Such an abundance of process and conformity with the Code:

distinguishes this case from those where a debtor’s use of § 363(b) constitutes a sub rosa plan; and
demonstrates that a sale through a confirmed Chapter 11 plan draws greater scrutiny, than a sale under § 363(b), and subjects the debtor to a more exacting standard to gain approval.

By contrast, a debtor improperly invokes § 363(b) where it attempts to evade the Bankruptcy Code’s creditor protections, effectively short circuiting the requirements of Chapter 11 for confirmation of a reorganization plan.

In this Boy Scouts case, rather than attempting to skirt those Chapter 11 plan protections, Debtors faced those protections head-on and subjected the policy buyback provisions to the Bankruptcy Code’s stringent confirmation requirements.

Conclusion

Here’s a “Thank you” to the U.S. Third Circuit Court of Appeals for this illumination, in its Boy Scouts opinion, on sub rosa plan issues.

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