Five years after it filed for bankruptcy protection in 2020 to deal with thousands of sexual abuse claims, the Boy Scouts of America reached a significant milestone when the U.S. Court of Appeals for the Third Circuit recently rejected the most significant challenges to the organization's chapter 11 plan, which established a trust to pay the claims of abuse victims. In In re Boy Scouts of Am., 137 F.4th 126 (3d Cir. 2025), reh'g denied, Nos. 23-1664 et al. (3d Cir. June 13, 2025), the court of appeals ruled that:
- An appeal filed by abuse claimants of the bankruptcy court order confirming the plan, which effectuated a global settlement involving the establishment of a trust to satisfy abuse claims and a buyback of insurance policies by insurers under section 363(b) of the Bankruptcy Code to fund the trust in exchange for a nonconsensual release of all liabilities, must be dismissed as "statutorily moot" because the abuse claimants were challenging a bankruptcy sale authorized as part of confirmation of a chapter 11 plan and failed to obtain a stay pending appeal;
- An appeal filed by certain nonsettling insurers seeking minor modifications to the plan to preserve their rights was not statutorily moot because the relief sought would not materially impact the settlement and insurance policy buyback;
- The insurance policy buyback transaction approved under section 363(b) was not an impermissible sub rosa chapter 11 plan;
- The nonsettling insurers' appeal was not "equitably moot" because the relief they sought did not threaten to unscramble the chapter 11 plan; and
- The plan did not need to be modified to adequately preserve the rights of certain nonsettling insurers, but had to be changed to ensure that other nonsettling insurers' claims were paid in full because, otherwise, the plan violated the prohibition against nonconsensual third-party releases as set forth in the U.S. Supreme Court's 2024 ruling in Harrington, United States Trustee, Region 2 v. Purdue Pharma L.P.
