Boy Scouts of America filed for bankruptcy after a flood of sex abuse cases, reports of declining membership, & legal battles with insurance companies.
The Boy Scouts of America filed for Chapter 11 bankruptcy protection early Tuesday as the organization faces 275 abuse lawsuits and potentially an additional 1,400 cases to come.
Having already paid more than $150 million in settlements and legal costs between 2017 and 2019, the Boy Scouts hopes to contain the financial damage of the abuse scandal and emerge as a more sustainable organization.
Bankruptcy was “the only viable option” for the Boy Scouts to consolidate numerous cases in one proceeding, pay its victims and emerge as a sustainable entity, the organization said.
But some victims attorneys have said the nonprofit is is turning to bankruptcy court to escape its obligations.
Chapter 11 bankruptcy: Boy Scouts files for court protection in the face of thousands of child abuse allegations
More than 130 million Americans and more than 35 million volunteers have participated in the Boy Scouts since it was chartered by Congress in 1916. The Irving, Texas-based group currently has about 2.2 million youth participants, 800,000 adult volunteers, 261 local councils and 81,000 Scouting units.
Tuesday’s court filing raises questions that are not likely to be answered soon. Here’s what we know about how the bankruptcy process could unfold:
Congress: Could the Boy Scouts go away?
Bankruptcy is a legal process provided for in the U.S. Constitution that allows organizations that can no longer pay their debts a chance to reduce their liabilities. It’s designed to give organizations a second chance, and many major companies have survived the process, such as General Motors and United Airlines. Others have gone out of business, such as Toys R Us and Circuit City.
Theoretically, the national Boy Scouts organization could be dissolved as a result of the bankruptcy. Chapter 11, the type of bankruptcy the Boy Scouts seeks, allows an organization to be liquidated to pay off creditors, which in this case would include abuse victims. If that happens, the organization’s assets would likely be sold off piece by piece. Local councils could form a new entity to oversee themselves or operate independently.
It’s more likely that the Boy Scouts will reach a broad settlement with victims and emerge from bankruptcy as a more financially viable enterprise, though likely one with fewer assets.
Congress: How many abuse victims are there?
That’s hard to say. The Boy Scouts currently faces 275 lawsuits. Victims’ attorneys have notified the group of another 1,400 claims likely to be filed, according to a court document.
That doesn’t mean there are that many victims, however. Multiple victims can join together in one lawsuit.
The bankruptcy petition lists 25 law firms with the largest number of clients with abuse claims. Abused in Scouting, one group within that list, says it has nearly 2,000 clients alone.
And then there are the victims who have not come forward.
Congress: When did the abuse take place?
About 90% took place more than 30 years ago, before the organization improved its process to screen volunteers, according to the Boy Scouts.
Since 2002, about 17 states have adopted laws allowing sexual abuse victims to pursue lawsuits that would have been outside the statute of limitations. Those laws have opened the door for many cases to be brought against the Boy Scouts.
There are new cases of abuse. Attorney Paul Mones, who has represented dozens of clients against the Boy Scouts, filed suit in December on behalf of a 17-year-old client who says he was abused in 2018.
Congress: How will the bankruptcy affect victims’ payments?
In bankruptcy, people who have won lawsuits against the debtor are typically paid less than what they are owed.
The exact amount will be determined based on the organization’s total assets, the amount of money the nonprofit owes to other entities and consideration of how payouts will affect the organization’s survival.
It’s a complex and often contentious process that could be handled with a broad settlement with victims or could be litigated in court for years.
The Boy Scouts on Tuesday filed a plan of reorganization, which is the customary document that dictates what percentage of its debts it plans to pay. But the organization did not specify what percentage it proposes to pay victims.
Congress: Could victims be forced to accept an amount they deem unacceptable?
Yes. If the organization and victims can’t reach a settlement, the Boy Scouts could request that the federal judge execute a “cramdown,” which is a legal term for a forced resolution of the case over the objections of the creditors.
In that case, the creditors could appeal the outcome, but bankruptcy appeals rarely result in a reversal that undoes the financial distribution ordered by the original judge.
Congress: How does the Boy Scouts propose to handle the victim compensation process?
Victims who have already won their cases but have not received a settlement, victims who are still pursuing cases, and victims who plan to file a claim in the coming months will be offered payouts from a newly formed Victim Compensation Trust.
If the Boy Scouts’ reorganization plan is approved by a bankruptcy judge, that trust will receive a pot of money to pay claims. The size of that pot will be determined by settlement negotiations and a likely legal fight over which assets should be included as part of the Boy Scouts’ estate.
To vet the legitimacy of the claims that have not yet been litigated, the Boy Scouts requests that all lawsuits be transferred to the U.S. District Court for the District of Delaware. That court would decide the legitimacy of the claims after the bankruptcy is complete.
Congress: Will insurance cover the abuse cases?
The Boy Scouts expects insurance will cover “a substantial portion” of the money owed to victims, according to a court filing.
Congress: Did they try to reach a settlement to avoid bankruptcy?
Yes. The Boy Scouts negotiated with victims’ attorneys in November but did not reach a settlement.
“It became apparent that attorneys for abuse victims believed certain Local Councils with significant abuse liabilities have significant assets that could also be used to compensate victims,” the Boy Scouts said in a court filing.
Congress: How much money does the Boy Scouts take in?
In 2019, the group reported $393 million in revenue, including about 30% in merchandise sales, 16% in membership fees, 15% in high-adventure facility operations and 13% in investment income, according to a court filing.
The organization listed more than $1 billion in total assets in a court filing.
Congress: What are some of the Boy Scouts’ most valuable assets?
The national group owns a wide range of properties. They include:
• The 150,000-acre Philmont Scout Ranch in the rugged mountain wilderness of northeastern New Mexico. This property is worth more than $40 million, according to the organization’s plan of reorganization.
• The 14,000-acre Summit Bechtel Family National Scout Reserve in West Virginia, where the World Scout Jamboree took place in 2019. More than 45,000 Scouts from 167 countries attended.
• The Northern Tier high-adventure facility on the boundary waters of Minnesota and Canada.
• Sea Base in Florida, where Scouts swim, snorkel, scuba dive and fish.
Congress: Will local councils be forced to sell assets?
This is a major point of dispute.
The national organization describes its relationship with local councils as a type of franchise arrangement. The national group handles the development of Scouts content and structure, licensing, training, human resources, legal support and information technology.
The local councils are separate legal entities, according to the national group.
Local councils often own their own assets. Victims attorneys believe those assets should be included in the national bankruptcy.
Congress: Who is sorting through victims’ claims?
The Boy Scouts picked tort expert James L. Patton Jr. to manage the process.
James Stang of Pachulski Stang Ziehl & Jones, a major firm that deals in bankruptcy, represents a group of attorneys who have many abuse victims as clients.
The Boy Scouts has asked a federal bankruptcy judge to serve as an independent mediator to negotiate a settlement between all parties.
Congress: Will victims’ privacy be protected during the bankruptcy?
Typically, the names of unsecured creditors are disclosed in a bankruptcy proceeding. But the Boy Scouts has requested permission from a federal judge to protect the identity of its victims, who are considered creditors in the case. That permission will almost surely be granted.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.
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