Amid sex abuse claims, bankruptcy case raises possibility Boy Scouts may not survive

Karl Baker, The News Journal

WILMINGTON, Del. — A day after the Boy Scouts of America filed for bankruptcy, an attorney for the century-old organization told a federal judge Wednesday about Norman Rockwell paintings.

Defending the legacy of the group that faces over a thousand child abuse allegations, she said the artist was among millions of people who have formed its “long and rich history here in the United States.”

Her clear implication: The future of the organization, once chartered by Congress, could be in doubt.  

“Unlike a for-profit corporation, a not-for-profit corporation actually has a fiduciary duty to preserve its mission,” said Jessica Boelter, partner at New York's Sidley Austin LLP.

Boelter's arguments kicked off the first day of hearings for a Chapter 11 bankruptcy case filed early Tuesday. While the Boy Scouts has maintained relatively strong finances, it potentially faces hundreds of millions of dollars in sex abuse claims.

The group brings in as much as $400 million annually in gross revenues from donations, store sales and membership fees, among other sources. Recent tax filings show it has amassed more than $1.3 billion in assets.

Local Boy Scout groups, called councils, hold millions more.

VIDEO THUMBNAIL - Boy Scouts File For Bankruptcy

Filed in the U.S. Bankruptcy Court in the District of Delaware, the Boy Scouts case is one of many high-profile bankruptcies to occur each year in the small state that is home to more companies than people. Delaware collects more than a quarter of its annual state government budget through taxes and fees imposed on those private entities domiciling within its boundaries.

Some victims’ attorneys have claimed the Boy Scouts bankruptcy filing is the nonprofit’s way of escaping legal obligations to those who suffered from abuse. The organization contends that bankruptcy was "the only viable option" for it to pay victims and emerge as a sustainable entity.

“BSA cares deeply about all victims of child sexual abuse and we urge through these proceedings for those victims to come forward,” Boelter said. 

The Boy Scouts organization faces 275 abuse lawsuits in various states. Potentially, there are an additional 1,400 cases to come. Current cases are expected to be put on hold as the group works to contain its financial damage by consolidating the claims into a single case in Delaware's federal bankruptcy court.

Before the bankruptcy papers were filed, jury selection in one Oregon sex abuse case was scheduled to happen next week.

“The debtors really need breathing room with respect to the (abuse) litigation," Boelter said. 

TROOP 1920: All girls Boy Scouts troop excited, ready to earn first merit badges

WHAT'S NEXT: Boy Scouts of America files for bankruptcy in Delaware court. What's next for local Scouts?

Boy Scouts attorneys separately are arguing that its affiliated local groups are not liable for what could become the consolidated claim. It all amounts to an unusual situation for the Delaware bankruptcy court, which is normally reserved for high-dollar corporate disputes.

Boelter said the Boy Scouts have two main objectives. One is to provide relief to victims and the second to preserve the organization as it operates today. That means an “expeditious exit” to the bankruptcy process, she said. If not, donations could slump.

“A prolonged bankruptcy proceeding has the acute risk of eroding the trust and confidence that our parents have,” she said.

Richard G. Mason, an attorney for local Boy Scout groups, reiterated the sentiment more forcefully, arguing that "millions will suffer" if the bankruptcy becomes prolonged and contentious.   

"We think the best solution is a mediated one," said Mason, a senior partner at New York's Wachtell, Lipton, Rosen & Katz.

Victims' attorneys, whose clients range in age from 7 to more than 90 years old, argued the proceedings should not be rushed. In particular, the Boy Scouts requested 80-day period for new abuse claims to surface is too short, they said.

Victims attorney Paul Mones believes there could be tens of thousands of victims going back decades. He called the 80-day limit an "insufficient" amount of time to find them. 

Still, Mones agreed that a drawn-out bankruptcy proceeding could become an existential threat to the Boy Scouts. 

"The Scout's future is dependent upon how long this bankruptcy goes on ... because it's 6- or 7-year old kids whose parents are deciding whether to join or not," he said.  

The Boy Scouts of America has filed for bankruptcy protection as it faces a barrage of new sex-abuse lawsuits. The filing Tuesday in Wilmington, Delaware, is an attempt to work out a potentially mammoth compensation plan for abuse victims that will allow the 110-year-old organization to carry on.

During hours of arguments Wednesday, attorneys telegraphed additional disputes likely to emerge.

Chief among them for many victims attorneys is the Boy Scouts decades-old list of potential abusers, referred to by the Boy Scouts as “ineligible volunteers” and by others as the "perversion files."

While the Boy Scouts have released sections of the list, victims say it should made public in its entirety. 

The run-up to bankruptcy

Reports of a potential bankruptcy first emerged at the end of 2018, with rumors that the nonprofit youth organization would follow in the footsteps of the Catholic Church, which has faced similar claims of abuse.

But unlike the Catholic Church bankruptcy cases, in which more than 20 individual dioceses have filed for protection, the Boy Scouts’ case will play out on a national level.  

Many saw the Scouts’ increase in annual membership fees in October, from $33 to $60, as evidence of financial trouble. 

Then on Jan. 1, the Church of Jesus Christ of Latter-day Saints – which for 100 years was among Boy Scouts’ largest partners – followed through on its plan to pull hundreds of thousands of Mormon youth out of Scouts in favor of its own youth program. That withdrawal caused an 18% drop in membership overnight, to fewer than 2 million. 

But the nonprofit organization's chief financial concern, according to victims’ attorneys and bankruptcy experts, is the rising liability from abuse lawsuits. The suits have led to battles with insurance carriers, who refused to pay out claims saying the Scouts failed to take effective preventive measures to stop the abuse. In 2018, Boy Scouts sued six of its carriers.  

“The problem with Boy Scouts is they're caught in a vice grip of, on one hand, having insurance companies not paying on these claims that Boy Scouts have already settled, and second having dwindling economic resources on account of paying out money for sexual abuse settlements,” said Mones, the attorney.

Information from the USA Today was included in this story.  

Contact Karl Baker at kbaker@delawareonline.com or (302) 324-2329. Follow him on Twitter @kbaker6.

This article originally appeared on The News Journal: In Delaware court, bankruptcy case raises possibility Boy Scouts may not survive