In re Boy Scouts of Am. & Del. BSA, LLC
| Decision Date | 29 July 2022 |
| Docket Number | Case No. 20-10343 (LSS) (Jointly Administered) |
| Parties | IN RE: BOY SCOUTS OF AMERICA AND DELAWARE BSA, LLC, Debtors. |
| Court | U.S. Bankruptcy Court — District of Delaware |
642 B.R. 504
IN RE: BOY SCOUTS OF AMERICA AND DELAWARE BSA, LLC, Debtors.
Case No. 20-10343 (LSS) (Jointly Administered)
United States Bankruptcy Court, D. Delaware.
Signed July 29, 2022
Timothy Jay Fox, Jr., David L. Buchbinder, Hannah Mufson McCollum, Office of the United States Trustee, Wilmington, DE, for U.S. Trustee.
David E. Blabey, Jr., Thomas Moers Mayer, Rachael Ringer, Megan M. Wasson, Kramer, Levin, Nafkalis & Frankel LLP, New York, NY, Logan R. Kugler, Stinson LLP, Minneapolis, MN, Natan M. Hamerman, Kramer Levin Naftalis & Frankel LLP, New York, NY, Christine D. Arnone, Stinson LLP, Kansas City, MO, for Creditor Committee Official Committee of Unsecured Creditors.
Ernest Martin, Jr., Haynes Boone, LLP, Dallas, TX, Laura E. Baccash, White & Case LLP, Chicago, IL, Joseph Charles Barsalona II, Pashman Stein Walder Hayden, P.C., Wilmington, DE, Karim Basaria, Bojan Guzina, Sidley Austin LLP, Chicago, IL, William E. Curtin, Sidley Austin LLP, New York, NY, Andrew W. Hammond, Samuel Paul Hershey, Charles D'Oria, Michael Jaoude, White & Case LLP, New York, NY, James W. Ducayet, Thomas A. Labuda, Jr., Andrew Fotre O'Neill, Melanie E. Walker, Sidley Austin LLP, Chicago, IL, Doah Kim, Ronald K. Gorsich, White & Case LLP, Los Angeles, CA, Carla Verena Green, Haynes Boone, LLP, Dallas, TX, Jesse L. Green, White & Case LLP, Miami, FL, Tori Lynn Remington, Andrew R. Remming, Sophie Rogers, Paige Noelle Topper, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, DE, Austin Rogers, White & Case, LLP, Washington, DC, Erin Rosenberg, White & Case LLP, Chicago, IL, Michael J. Stoner, Haynes Boone, LLP, Dallas, TX, Jennifer M. Thomas, Robert E. Tiedemann, III, White & Case, LLP, New York, NY, Adrian C. Azer, Haynes & Boone, LLP, Washington, DC, for Debtor.
OPINION
Laurie Selber Silverstein, United States Bankruptcy Judge
Introduction
This is an extraordinary case by any measure.
This is a mass tort case. It involves sexual abuse claims. The debtor, Boy Scouts of America ("BSA"), is a household name. It is a national, nonprofit organization. Over the one hundred plus years of its existence, BSA delivered its Scouting mission through, and in partnership with, tens of thousands of non-debtor entities.
This is a case about trust—or more accurately—lack of trust. Boys and their families put their faith in a lionized institution, which failed many of them. These boys—now men—seek and deserve compensation for the sexual abuse they suffered years ago. Abuse which has had a profound effect on their lives and for which no compensation will ever be enough. They also seek to ensure that to the extent BSA survives, there is an environment where sexual abuse can never again thrive or be hidden from view.
This is a case that has been emotionally charged. 82,209 claimants filed proofs of claim asserting sexual abuse. Claimants have actively participated in this case through an official creditors committee, an ad hoc committee and pro se. The court has received over 1000 letters from claimants who each have their own story to tell, many for the first time. Given what is at stake, it is not surprising that claimants hold strongly different views regarding how this case should conclude, even whether this debtor should continue to exist.
This is also a case about an institution that seeks to continue with its mission. BSA currently serves over one million boys and girls across the country, providing them with opportunities to learn self-sufficiency and leadership skills that can contribute to the betterment of society.
TABLE OF CONTENTS
BACKGROUND ... 521
I. Prepetition ... 521
A. The Delivery of Scouting and the Relationship Between and Among BSA, Local Councils and Chartered Organizations ... 521
1. Boy Scouts of America... 521
2. Local Councils ... 522
3. Chartered Organizations ... 523
4. Related Non-Debtor Entities ... 524
B. Sexual Abuse Lawsuits ...525
C. Overview of the Boy Scouts Insurance Program ...526
1. Coverage Under BSA Insurance Policies ...526
a. Coverage for BSA as the Insured ... 526
b. Coverage for Local Councils as Additional Insureds ... 527
c. Coverage for Chartered Organizations as Additional Insureds ... 528
2. Overview of Local Council Insurance ...528
3. Chartered Organization Insurance Policies ... 528
4. Combined Single Limits ... 528
D. Prepetition Coverage Litigation ... 530
E. Prepetition Resolutions and Attempts to Resolve Abuse Claims ... 531
II. Postpetition Events ... 532
A. The Bar Date ... 533
B. Mediation ... 534
C. The Plan Process and Voting ... 534
1. Solicitation ... 534
2. The Initial Voting Results ... 537
3. Continued Mediation and Further Insurance Settlements ...538
4. Additional Settlements with Chartered Organizations ... 539
5. The Resolution with the TCC ... 540
6. The Settlement Trust Agreement and the Trust Distribution Procedures, as Amended ... 541
a. The Settlement Trust Agreement ... 541
b. The Trust Distribution Procedures ... 541
7. Chartered Organizations ... 546
a. Contributing Chartered Organizations ... 546
b. Participating Chartered Organizations ... 546
c. Opt-Out Chartered Organizations ... 547
8. Youth Protection ... 548
9. Plan Modifications, Supplemental Disclosure and Voting ... 550
10. The Confirmation Hearing ... 550
a. The Objectors ... 551
b. Plan Supporters ... 552
c. The Hearing ... 552
JURISDICTION ... 553
DISCUSSION ...553
I. Additional Findings Related to Direct Abuse Claims ... 553
A. The Aggregate Value of the Direct Abuse Claims ... 553
B. The Potential Available Coverage of Non-Settling Insurance Companies for Allocated and Unallocated Claims ...558
C. The Plan is a 100% Plan with Respect to Direct Abuse Claims ... 560
II. The Settlements ... 562
A. The Settling Insurer Settlements ... 562
B. The Settling Insurer Settlements Meet the Martin Standard ... 563
1. Hartford ... 564
2. Century ...565
3. Zurich ...566
4. Clarendon ... 567
C. The Buyback of the Abuse Insurance Policies ... 568
1. The Abuse Insurance Policies Issued by Hartford and Century as well as the Proceeds of Those Policies are Property of the Estate ... 570
2. The Automatic Stay Prevents a Sale Free and Clear of the Archbishop's Interests ... 574
a. The Buyback of the Abuse Insurance Policies is Not Part of the Claims Resolution Process ...575
b. A Violation of the Automatic Stay Does Not Depend on Whether the Prohibited Action May be Favorable to the Estate ... 576
c. The "Dueling Debtor" Argument Favors the Archbishop ... 577
3. The Abuse Insurance Policies Can be Sold Free and Clear of the Lujan Claimants’ Direct Action Rights ... 579
a. The McCarran-Ferguson Act Does Not Reverse Preempt Any Code Section or Plan Provision that Permits the Channeling of Direct Abuse Claims to the Settlement Trust ... 579
b. Section 363(d)(1) Does Not Apply to the Lujan Claimants’ Direct Action Rights ... 584
c. The Abuse Insurance Policies Can be Sold Free and Clear of the Lujan Claimants’ Direct Action Rights Under § 363(f)... 585
D. The Releases ... 586
1. The Scouting-Related Releases ... 586
a. Definitions ... 586
b. The Third Circuit's Decision in In re Continental Airlines Holding, Inc. ...587
c. Subject Matter Jurisdiction ... 588
i. Bankruptcy Jurisdiction Exists Over Direct Abuse Claims Asserted Against Local Councils and Chartered Organizations ... 588
ii. Bankruptcy Jurisdiction Exists Over the Direct Abuse Claims Asserted Against the Related Non-Debtor Entities ... 592
iii. Bankruptcy Jurisdiction Exists Over Direct Abuse Claims Asserted Against Debtors’ Officers and Directors and Other Representatives ... 592
d. Statutory Authority ...594
e. The Scouting-Related Releases (Except with Respect to TCJC) Meet the Continental Standard ... 595
i. The Parties’ General Positions ... 596
ii. The Master Mortgage Factors ... 597
(a) Identity of Interest ... 597
(b) Contribution of Substantial Assets to the Reorganization ... 602
(1) Settling Insurers ... 602
(2) Local Councils ... 602
(3) The Chartered Organizations ...604
(i) United Methodist Entities ... 604
(ii) The Participating Chartered Organizations.... 605
(iii) The Opt-Out Chartered Organizations ... 606
(iv) Related Non-Debtor Entities and Representatives ... 606
(c) A Substantial Majority of the Impacted Creditors Agree ... 606
(d) The Plan Provides a Mechanism for the Payment of All, or Substantially All, of the Claims of the Class or Classes Affected by the Injunction ... 607
(e) The Injunction is Essential to Reorganization Such that Without it There is Little Likelihood of Success ... 608
iii. The Continental Hallmarks ... 616
E. The TCJC Settlement ... 620
III. The Findings ... 621
A. Finding x: The "Fair and Equitable" Finding ... 625
B. Finding aa: The Historical Consistency Finding ... 629
C. Finding w: The Binding Finding ... 630
D. Finding y: The Allowed Claim Finding ... 631
E. Finding z: The Good Faith Finding ... 632
IV. The Confirmation Standards - Section 1129 ...633
A. Section 1129(a)(1) ... 633
1. Section 1122 ... 633
2. Section 1123(a) ... 635
a. Section 1123(a)(4) ... 636
i. Girl Scouts ... 636
ii. The Lujan Claimants and I.G ... 637
b. Section 1123(a)(5) ... 639
c. Section 1123(a)(7) ... 639
B. Section 1129(a)(3) ... 645
1. The Certain Insurers’ Objection ... 646
a. The Drafting of the TDP ... 646
b. The TCC Term Sheet ... 648
c. Quantum of Liability ... 651
d. The Trust Distribution Procedures ... 653
e. Statute of Limitations/Negligence ... 657
2. The TDP Fees ... 658
3. The Lujan Claimants’ Objection ... 660
4. Mr. Schwindler's Objection ... 660
C. Section 1129(a)(7) ... 661
1. Section 1129(a)(7) Applies to Nonprofits ... 662
2. All Other Objections are Overruled ... 663
V. Remaining Insurance Issues ... 666
A. Assignment of Insurance Rights ... 666
B. Assignment of Non-Debtor Insurance Rights ... 669
C. Indirect Abuse Claims/Setoff and Recoupment/Reinsurance/Self-Insured Retentions ... 671
VI. The United States Trustee's Remaining Objections ... 674
A. The Consensual Third-Party Releases ... 674
B. Exculpation/Exculpation Injunction ... 678
VII. Remaining Objections of Pro Se Claimants...
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