The Boy Scouts of America may be forced to cut $250 million from its proposal to set up a trust fund for sex abuse victims after a judge rejected a key provision of a deal the youth group signed with The Church of Jesus Christ of Latter-day Saints.
The complex ruling by U.S. Bankruptcy Court Judge Laurie Silverstein forces the Boy Scouts to return to the bargaining table with some of the groups funding the $2.7 billion fund, including the religious group known colloquially as the Mormon church.
Silverstein handed the Boy Scouts a partial victory Friday when she rejected arguments that a settlement with abuse survivors was not negotiated in good faith. The judge did not give final approval to the proposed trust fund plan, however, instead she rejected a number of key provisions. One example is Silverstein’s refusal to grant the church a so-called third party release that would have given the church broad legal protections from all sex abuse claims, not just those involving the Boy Scouts.
“The TCJC settlement stretches third party releases too far,” Silverstein wrote. Such releases have been attacked by members of the US Congress and advocates for sex abuse victims and people harmed by addictive prescriptions drugs.
A representative for the church declined to immediately comment.
The Boy Scouts will also need to change the complex rules governing how much each abuse victim would collect under the plan because of Silverstein’s decision. The judge sided with holdout insurance companies lead by American International Group Inc. when she refused to declare that the rules, known as trust distribution procedures, are “fair and equitable.”
The Boy Scouts “have decisions to make regarding the plan and need sufficient time to determine how to proceed,” Silverstein wrote.
Those decisions include whether to try to get a new deal with the Mormon church.
“We are committed to working with all constituents to make the necessary changes required by the ruling to drive this process forward and we remain optimistic about securing approval of a final Plan as soon as possible” the Boy Scouts said in an emailed statement.
The decision came after a weeks-long trial ended earlier this year in Wilmington, Delaware. Silverstein listened to testimony from abuse experts, financial advisers and insurance specialists over whether it would be fair — and legal — for the Boy Scouts to route those abuse claims to the compensation fund instead of allowing them to proceed in court. The fund would compensate 82,000 people who claim they were molested while part of the 112-year-old organization.
Her complicated ruling was almost 300 pages long and included more than 750 footnotes.
For the Boy Scouts to exit bankruptcy oversight, they need Silverstein to approve their proposed reorganization. The plan is based on the trust fund and the lengthy procedures it would use to determine how much each victim is entitled to receive.
Silverstein said she would hold a court hearing on the status of the reorganization after the Boy Scouts have reviewed her detailed ruling.
After a rocky start to the bankruptcy case in 2020, the Boy Scouts eventually settled with the main victims’ groups, several wealthy local scouting councils and some insurance companies. Those groups kicked in the $2.7 billion and voted overwhelmingly in favor of the proposal.
The holdout insurers, including AIG, Liberty Mutual Holding Co. and Travelers Cos., tried to convince Silverstein to reject the compensation fund by arguing that the deals underpinning it were negotiated in in bad faith. They also claimed rules for deciding who should be paid and how much are unfair.
The case is Boy Scouts of America, 20-10343, U.S. Bankruptcy Court, District of Delaware (Wilmington).
