May 12, 2022 - News

Boy scout case could change large bankruptcy cases forever

A statue of a boy scout looking over his shoulder

Boy Scouts of America headquarters, in the Dallas suburbs. Photo: Tom Pennington/Getty Images

Bankruptcy attorneys across the nation are watching the case of Irving-based Boy Scouts of America, which is working to settle the largest sex-abuse lawsuit in history.

  • Parties involved in the settlement include the national organization, chapters across the country, religious organizations that sponsored chapters, insurance companies and more than 80,000 abuse survivors.

Driving the news: A ruling in the case, which involves a $2.7 billion settlement offer to survivors, could come any day.

Catch up quick: Boy Scouts of America filed for Chapter 11 bankruptcy in February 2020, after several states changed laws that allowed victims to sue over decades-old allegations.

  • More than 50,000 survivors voted on the proposed settlement, which averages out to $31,000 per survivor.

The big picture: Regardless of the ruling, the office of the U.S. Trustee — part of the Department of Justice — could appeal based on the settlement's use of nonconsensual third-party releases, which could set a precedent for large-scale tort litigation.

  • These releases allow a company or organization to cap its total liability after a settlement, meaning nobody else can sue over this particular issue.

Yes, but: Even if all the parties involved in the suit agree to the terms of the settlement, the particulars of federal bankruptcy code could still be a roadblock.

  • In December, a federal judge in New York rejected Purdue Pharma's $4.5 billion bankruptcy settlement with thousands of state, local and tribal governments who sued the company over the opioid epidemic, ruling that the court doesn't have the legal authority to release the Sackler family from liability in civil cases.

What they're saying: "If the bankruptcy court rejects this settlement, or it gets rejected on appeal, the global settlement architecture will fail," Steven B. Smith, a partner in the restructuring and finance litigation department at Herrick, Feinstein LLP in New York, tells Axios.

  • "These releases are the lynchpin for this type of litigation. Without them, many companies facing tort exposure will have to liquidate, and survivors will have to pursue individual settlements. It'll be a race to the courthouse."

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