Reeling from the prospect of virtually unlimited liability after decades of sex abuse allegations, the Boy Scouts of America filed for Chapter 11 bankruptcy in Delaware court. For the Boy Scouts, this filing caps an exploratory process that lasted 15 months when the organization began to lay the groundwork for a possible filing.
The bankruptcy filing, however, is not the end of the line for the Boy Scouts. The organization is believed to be working out a plan that would allow it to continue operating while compensating the victims for the harm that they suffered. However, it is not apparent that the organization will be able to execute this plan.
Recent changes in laws in many states have made it possible for those who were allegedly molested by scoutmasters decades ago to now file lawsuits against the Boy Scouts. States have changed their statutes of limitations to allow victims to sue as adults. Combined with the fact that victims may sue the organizations that were represented by the pedophiles, the Boy Scouts were facing an existential crisis due to the staggering amount of possible liability.
The scope of the Boy Scouts legal liability became apparent when an Oregon jury ordered it to pay $20 million to one victim of a pedophile. This was just one case when there have been thousands of allegations raised against the Boy Scouts with regard to abuse suffered by children decades ago.
What has raised the legal stakes for the Boy Scouts is the fact that the organization is alleged to have known of the pattern of abuse in its ranks. Many children were reported to have filed complaints, but the Boy Scouts did not take any action to address the problem or even to remove the alleged pedophiles from service to the Boy Scouts. The Boy Scouts even kept a database of alleged abusers in an attempt to prevent them from working with children, but in many instances, those suspected of abuse were able to keep working with children. These internal files contained the name of over 12,000 victims suggesting that the
Boy Scouts had a deep knowledge of the problem for decades.
The Boy Scouts had previously claimed that it did not allow suspected abusers to work with children. However, the organization’s chief executive recanted that position in a letter to Congress. With thousands of potential plaintiffs and reams of damaging evidence, the Boy Scouts’ continued existence was threatened, causing them to proactively seek bankruptcy to manage their own liability.
Even though the national Boy Scouts organization has well over a billion dollars of assets, the scope of the potential liability dwarfs that given the sheer number of plaintiffs and the level of culpability of the organization. Thus, the Boy Scouts needed to take action that would help settle the claims while still allowing it to operate. Notwithstanding the conduct of the organization, millions of children over the past century have benefited from their positive association with the Boy Scouts.
In order to file a Chapter 11 bankruptcy, the filer must come into court with a plan that will allow it to continue operations while working to pay its debt. A Chapter 11 filing is not a dissolution of the organization and the Boy Scouts intend to continue operating in the future. When an organization files a Chapter 11, the court must approve the plan.
Here, the Boy Scouts intend to create a trust that will fairly compensate victims of sexual abuse. The Boy Scouts plan to sell off assets as necessary to fund the trust. The Boy Scouts have almost $700 million in stocks and bonds and many more assets in real estate. However, given the scope of the organization’s liability, bankruptcy was a necessary option.
For the Boy Scouts, the organizations hopes to enter into a global settlement agreement with all possible claimants as part of the bankruptcy court process. However, some have already claimed that the Boy Scouts are using the bankruptcy process in order to get out of paying fair compensation to the victims while continuing to operate.
Additionally, there is no guarantee that the Boy Scouts will be able to continue. If the Boy Scouts’ reorganization plan is not accepted, others, including creditors, can file their own reorganization plans. One possibility is that the creditors can file a plan that would call for the company to be dissolved and the assets sold off to pay creditors.
There are many uncertainties facing the Boy Scouts and the victims right now that make this bankruptcy a fluid situation. First, it is not known how many lawsuits will be filed against the organization. Currently, there are 275 lawsuits with another 1,400 or more expected to be filed. There may be even more plaintiffs on top of that.
It is also unknown what percent of the liability the Boy Scouts intent to pay as part of their bankruptcy proceedings. One of the reasons for the uncertainty is that the Boy Scouts do not know the exact amount of plaintiffs.
At this point, the Boy Scouts bankruptcy filing can go in one of many different directions. There could be a global settlement and an orderly bankruptcy or the matter could play out in bankruptcy court over a number of years.