Boy Scouts of America – Preliminary Plan Voting Results Trigger New Round of Debate Over Plan’s Viability; Judge Silverstein May be Ultimate Arbiter of Appropriate Plan Voting Threshhold

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January 5, 2022  – The Debtors' claims agent has filed "preliminary" voting results in respect of the Debtors' Second Modified Fifth Amended Plan of Reorganization; with those voting results serving to trigger another round of largely media-focused challenges to the Plan's viability driven by victims' representatives who continue to oppose the Plan or are at least looking to extract further value from the Debtors' insurers. 

Numerous news sources are reporting that the preliminary tabulation as to the Plan's Class 8 ("Direct Abuse Claims") now imperils the Plan, with the 73.12% voting in favor (notwithstanding that this level comfortably exceeds the Bankruptcy Code's "more than half in number and two-thirds in value" standard bright line test) failing to meet a higher 75% threshold applied to mass tort cases in the asbestos context and, at the discretion of a presiding judge, occassionally to non-asbestos cases. 

In 1994, Congress amended the Bankruptcy Code to codify elements of the Manville cases, with the then new Section 524(g) adding a 75% threshhold in respect of mass tort cases involving asbestos and where bankrupt estates were asking the Court to bless a channeling injunction in respect of future claims.

The applicability of the higher threshold, however, is far from certain in the sexual abuse context. Since the resolution of Manville, several mass tort defendants have successfully established bankruptcy trusts to address mass tort claims outside of the asbestos context by appealing to bankruptcy courts’ "general equitable powers" under section 105 of the Bankruptcy Code (See 11 U.S.C. § 105(a) (“[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.”).

This choice of the appropriate threshhold, if the Debtors' do not otherwise see the preliminary result move up beyond 75% mark (a review of ballots including "at least 3,400 potential duplicative Ballots" is ongoing), will likely be decided by Judge Laurie Selber Silverstein. 

Judge Silverstein has already approved the Debtors' Disclosure Statement/solicitation materials (unsurprisngly, no mention of the higher 75% threshold in those documents, although predictably they include numerous references to the standard half in number and two-thirds in value rule) and has otherwise shepherded these cases to the brink of a scheduled February 22nd Plan confirmation hearing. Although Plan support amongst victims groups has continued to shift throughout the Debtors' stay in bankruptcy, the Debtors continue to have the support of groups representing a majority of victims, including the Coalition of Abused Scouts for Justice (the "Coalition") and the Future Claimants’ Representative.

Of the estimated 82,000 potential sexual abuse claimants in Class 8, 53,888 have been counted as having submitted valid votes. By our calculations, the Debtors are 1,010 votes shy of the 75% threshhold (or just 505 flipped votes) needed to meet the higher standard. Will Judge Silverstein use her discretion to second guess a debtor's Plan where the margin, even under a higher 75% standard, is only a few hundred votes?

Preliminary Plan Voting Results

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