Boy Scouts Abuse Settlement Attacked for Preventing Future Lawsuits

The Boy Scouts of America’s sexual abuse compensation fund should be rejected, say a small group of victims, because the proposal suffers from the same legal flaw that ended a similar plan by bankrupt opioid maker Purdue Pharma LP.

The Boy Scouts are trying to manipulate bankruptcy rules to force an end to lawsuits against local scouting boards and related groups that have not filed for Chapter 11 protection, victims and other critics will argue in federal court today.

Although an overwhelming majority of victims voted in favor of the Boy Scouts’ $2.7 billion compensation fund, attorneys for several dozen abuse survivors will try over the next two days to convince a federal judge to reject the proposal. They will be joined by the US Trustee, a federal watchdog that oversees corporate bankruptcy cases, and several insurance companies.

Critics say the Boy Scouts are the latest organization to attempt to use an obscure section of the U.S. bankruptcy code to shield non-bankrupt members from lawsuits, a move that Purdue, Johnson & Johnson and others large companies have also employed. Last year, a federal judge in New York threw out Purdue Pharma’s multibillion-dollar compensation fund because it proposed to block lawsuits against people and entities that didn’t join the drugmaker in bankruptcy.

Final arguments

All sides met on Zoom Wednesday morning to present their closing arguments for and against what would be the largest compensation fund for victims of sexual abuse. One of the first issues that came up was the accusation by insurers that the fund was set up in bad faith because it favors the interests of the plaintiffs’ lawyers who come forward to collect large fees.

“I was disappointed by the lack of evidence of bad faith,” said US Bankruptcy Judge Laurie Silverstein. “I didn’t see anything to support the insurers’ position on this.”

Insurers will have a chance to argue their position later.

Silverstein has listened for weeks to testimony from abuse experts, financial advisers and insurance specialists about the Boy Scouts’ complex plan to route more than 80,000 abuse complaints to the compensation fund instead of allowing them to proceed in court.

Insurers including American International Group Inc., Liberty Mutual Holding Co. and Travelers Cos. oppose the plan because they say it may force them to make payments they cannot negotiate, even when the allegations are fraudulent.

After the Boy Scouts filed for bankruptcy in 2020, attorneys for the victims began an advertising campaign to recruit clients. That helped push the total number of abuse claims to 82,000 from around 1,400 at the start of the bankruptcy.

Boy Scouts Victims’ Fund is unfair to insurers, companies argue in court

The Boy Scouts have spent the past three weeks in federal court in Wilmington, Delaware, trying to convince Silverstein to approve the trust fund, which is the central feature of the group’s reorganization plan. Under the proposal, all current abuse cases would be handled by the trust, which has elaborate rules for deciding how much each victim should receive.

Purdue Pharma was one of a series of bankruptcies, along with a case brought by a unit of Johnson & Johnson, that caused a stir among elected officials last year. Purdue tried to end lawsuits against itself and its billionaire owners by creating a compensation fund and requiring all litigation to be directed there. That plan was rejected by a federal judge, sending Purdue back into negotiations with opponents. An appeal is ongoing.

J&J is trying to shake off tens of thousands of lawsuits over its iconic baby powder, without bankrupting the consumer health giant. Using an obscure Texas law, J&J diverted billions of dollars in potential lawsuits to an isolated subsidiary, which was then placed under court protection.

In response, some members of Congress have proposed legislation to curb such practices.

Insurers who oppose

The Boy Scouts’ $2.7 billion trust is funded by the youth organization, some insurers and religious groups. Earlier this year, the last major victims’ groups reached an agreement with the Boy Scouts to back the fund. That left a much smaller number of victims and reluctant insurers as the main opponents.

Objecting insurers say their contracts with the Boy Scouts are being rewritten to please the victims’ attorneys. Those contracts will be taken over by the trust, which will be dominated by advocates for victims, insurers argue.

The plan is also opposed by the US Trustee, a federal bankruptcy watchdog, which argues that too many groups and individuals are being released from liability in the deal.

The case is Boy Scouts of America, 20-10343, US Bankruptcy Court, District of Delaware (Wilmington).

Copyright 2022 Bloomberg.

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