Boy Scouts Case Far From Over As Chapter 11 Appeals Loom
Steven B. Smith, partner in Herrick's Restructuring & Finance Litigation Department, spoke to Law360 about the Boy Scouts of America Chapter 11 case and the recently issued plan confirmation order. During the trial earlier this year, the U.S. Trustee's Office opposed the non-consensual third-party releases of non-debtors and is likely to file an appeal over that aspect of the plan.
Steve noted that even though there has been a trend running against such releases, the facts surrounding the Boy Scouts case are not likely to lead to an overturning of the plan based on release arguments. He added, "Given the extreme facts and circumstances in this case, including the $2.5 billion settlement fund, the upwards of 80,000 claims, and the other facts, I think the confirmation order will be approved and blessed on appeal."
He qualified that prediction by saying he would have made a similar prediction in the Chapter 11 case of opioid maker Purdue Pharma, whose plan was reversed on appeal in late 2021. In this matter, the judge in the Southern District of New York said the bankruptcy code doesn't allow for non-consensual releases of third-party claims against non-debtors. That ruling is currently on appeal to the Second Circuit.
Steve further highlighted that Third Circuit precedent allows for those releases in cases with extraordinary facts, and the rulings in the Boy Scouts case falls in line with the circuit rulings.
The article notes that while there may be some claimants who didn't wish to give up their ability to pursue abuse claims against the Boy Scouts and other related non-debtor entities in state court actions, the effect of the plan was made clear, and it received support from more than 80% of the voting claimants. "It seems like that's been explained here because there has been overwhelming support in favor of the plan," Steve said. He added, "Folks can see their best chance of getting a meaningful distribution is with this kind of global settlement architecture."
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