Boy Scouts Bankruptcy Exposes Court Split on Liability Releases

August 19, 2022 – Media Mention
Bloomberg Law

Steven Smith, partner in Herrick's Restructuring & Finance Litigation Department, spoke to Bloomberg Law about the recent ruling in the Boy Scouts of America Chapter 11 case. This decision has reignited the debate over whether a bankruptcy court has authority to approve nonconsensual liability releases, an issue at the center of a number of high-profile cases.

Steve noted that the stark contrast in major cases that have grabbed national attention may ultimately lead to “a full out circuit split on the issue” that either Congress or the Supreme Court will have to resolve.

"There’s this tension on the one hand with courts that find ways to approve those plans because there’s a hard fact that global peace is the way to solve contentious cases," Steve added, referring to the settlements that were reached with the help of such releases. He added, "But at the end of the day, there’s no bankruptcy code provision you can point to that allows it."

Steve highlighted, "We’re now waiting on the Second Circuit to opine."

Steve expanded that with scrutiny of third-party releases on the rise, the Boy Scouts ruling “seems to buck the growing trend” even though its “fairly consistent with the caselaw and authority” in the Third Circuit.

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