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Non-consensual releases in Boy Scouts chapter 11 plan survive despite Purdue Pharma ruling

Non-consensual releases in Boy Scouts chapter 11 plan survive despite Purdue Pharma ruling
Published Date
Jul 11 2025
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The Supreme Court’s landmark 2024 Purdue Pharma decision altered the landscape for bankruptcy releases and, in the process, put the resolutions of several other pending mass tort chapter 11 cases in question.

A recent decision by the Third Circuit Court of Appeals held that the chapter 11 plan of Boy Scouts of America (Boy Scouts), which featured a sale of insurance policies back to insurers to fund a trust for the benefit of tort victims, was protected from review on appeal by section 363(m) of the Bankruptcy Code, even though the transaction included non-consensual third-party releases, which the Supreme Court, held to be impermissible in Purdue Pharma.1 The Third Circuit’s decision demonstrates how section 363(m) can provide powerful and broad protection to all aspects of a sale bargain, including monetary and non-monetary consideration, like third party releases.

Procedural background

Boy Scouts was named as a defendant in a wave of childhood sexual abuse cases, which ultimately led to it filing for chapter 11 bankruptcy protection in February 2020. Before filing for bankruptcy, Boy Scouts had resolved approximately 250 abuse claims for damages that totaled approximately USD150 million.2 Overall, the Delaware Bankruptcy Court would later estimate the total value of sexual abuse claims as between USD2.4 billion and USD3.6bn.3

To resolve these liabilities, the Boy Scouts proposed a chapter 11 plan of reorganization (the Plan), which it had negotiated with various plaintiffs’ law firms representing more than 82,000 claimants. The Plan created a Settlement Trust funded with USD2.48bn from the proceeds of asset sales and contributions from non-debtors including entities related to the United Methodist church and local scouting councils.

Boy Scouts had various insurance policies that covered its liabilities with respect to abuse claims. Boy Scouts reached a series of settlements with certain of the original insurers (the Settling Insurers) to sell certain of the insurance policies back to the Settling Insurers for USD1.6bn. The Settling Insurers agreed to pay that lump sum to the Settlement Trust in exchange for the release of all liability on future abuse claims. To effectuate this release, the Plan incorporated a broad release of all claims (with certain exceptions) against both the debtors and non-debtor entities that related to the Boy Scouts abuse claims. These releases applied to the Debtors, the Settling Insurers, and local councils (the Protected Parties). The releases also applied to various Chartered Organizations, such as the United Methodist entities, and “Limited Protected Parties,” such as Roman Catholic churches. There was no opportunity for claimants to opt out of the releases, making them non-consensual. 

The United States Bankruptcy Court for the District of Delaware confirmed the Plan and the United States District Court affirmed that decision, following which, the Plan became “effective.” As a result, as of the time of the Third Circuit’s recent ruling, the Plan had already been in effect for two years and “paid thousands of survivors.”4 While the appeal remained pending, the United States Supreme Court issued a decision overturning confirmation of Purdue Pharma’s chapter 11 plan of reorganization, holding that the non-consensual third-party releases included in that plan are not permissible under the Bankruptcy Code.

Two groups representing 140 abuse victims (the Appellants) appealed to the Third Circuit. They argued that the court must overturn confirmation of the Plan given the presence of non-consensual third party releases deemed impermissible under the Purdue Pharma decision. In response, the Settling Insurers, with the support of the Debtors, argued that the appeal was both statutorily moot under section 363(m) and equitably moot.

Relevant legal provisions

A provision in the settlement agreements with the Settling Insurers stated that the sale was to be conducted under section 363 of the Bankruptcy Code and be “free and clear of all claims and interests.”5 Under section 363(b), distressed entities can “use, sell, or lease” assets in bankruptcy outside of the ordinary course of business with court approval.

Section 363(m) protects unstayed orders authorizing sales to good-faith purchasers from reversal or modification on appeal. It is not dependent on whether the good-faith purchasers knew of the pendency of the appeal.6 The sale authorization can be reversed or modified if “such authorization and such sale or lease were stayed pending appeal.”7 The purpose and effect of section 363(m) is to provide finality so that purchasers can engage in sale transactions without worrying that a court will later unwind the sale without warning.

The Third Circuit decision

The Third Circuit relied on “statutory mootness” under section 363(m) to dismiss the appeals of the Appellants. The panel first laid out the three criteria for application of section 363(m): “[1] that the appeal is from an authorization of a sale, [2] that the purchase was made in good faith, and [3] that the sale was not stayed.”8 If all three of those prerequisites are met, the court then determines “whether a remedy can be fashioned that will not affect the validity of the sale.”9 If any proposed remedy will affect the validity of the sale, such as by materially affecting the sale price, then dismissal of the appeal is required. If it does not, the court can proceed with “entertain[ing] the appeal.”10

Notably, the Third Circuit held that section 363(m) applies to sales embedded in a plan of reorganization. In considering its application to the Boy Scouts Plan, the court held that section 363(m) applied to shield not only to the sale of the insurance policies but also the related non-consensual third-party releases from appellate scrutiny. The Court found that (1) the order confirming the Plan (the Confirmation Order) was an order authorizing the sale, (2) the bankruptcy court in the Confirmation Order found that the insurers were “good-faith purchasers,” a conclusion with which the Third Circuit agreed, and (3) the Confirmation Order was not stayed pending appeal, meeting all the requirements for protection under § 363(m).

The Third Circuit further concluded that invalidating the non-consensual third-party releases so late into the process would drastically affect the “validity of a sale to which [Boy Scouts] and the Settling Insurers agreed.”11 The Court found that because the non-consensual third-party releases formed an important and material component of the consideration that the Settling Insurers had bargained for when agreeing to pay the USD1.6bn purchase price, they would have substantially lowered their offer if they did not receive full liability releases in exchange.12

Even permitting a small number of claimants to opt-out of the releases, the court held, would effect “the same result”13 by depriving the Settling Insurers of their bargained-for full liability releases. Accordingly, although the Third Circuit was clear that the Supreme Court’s decision in Purdue Pharma (which was handed down after confirmation of the Plan) today would render the Plan unconfirmable, due to the scope of section 363(m), it nevertheless was now required to dismiss the appeal.

Implications

The Third Circuit’s decision reinforces the strong protections provided to purchasers in chapter 11 cases by section 363(m). It offers a reminder that such protections cover not only all aspects of the sale itself but also other related transactions that could affect the parties’ bargained-for exchange. For Boy Scouts, the protections of section 363(m) meant that the full scope of their releases remain intact, notwithstanding the subsequent Supreme Court decision in Purdue Pharma.

In a strongly worded concurring opinion, one judge on the panel suggested that the decision provides an incentive to parties to structure chapter 11 plans as sales to avoid judicial scrutiny of impermissible releases and other provisions.14 It is easy to envision debtors and purchasers arguing that every aspect of a plan represents consideration for a sale. The concurrence points to several cases in which bankruptcy courts have not enforced Purdue Pharma’s prohibition in section 363 sales, underlying how important appellate scrutiny is with regard to such complex issues.15

With a “good-faith purchaser” finding included in nearly every order approving a sale transaction, and stays pending appeal not readily granted by courts (or made contingent on posting an onerously large bond), the chances of a plan sale incorporating impermissible non-consensual third party releases slipping through without appellate scrutiny seems higher than the majority opinion lets on. Whether parties see restructuring plans as sales as a viable route to getting releases approved that they could otherwise not obtain remains to be seen and bears watching.

Footnotes

1Harrington v. Purdue Pharma, L.P., 603 U.S. 204 (2024).

2In re Boy Scouts of America, 137 F.4th 126, 143 (3d Cir. 2025).

3Id.

4. Alexandra Jones, Third Circuit rejects sex abuse victims appeal of Boy Scouts bankruptcy deal, Courthouse News, https://www.courthousenews.com/third-circuit-rejects-sex-abuse-victims-appeal-of-boy-scouts-bankruptcy-deal/.

5In re Boy Scouts, 137 F.4th at 144.

6. 11 U.S.C. § 363(m).

7. 11 U.S.C. § 363(m).

8In re Boy Scouts, 137 F.4th at 149 (quoting In re Energy Future Holdings, 949 F.3d 806, 821 (3d Cir. 2020)).

9Id.

10Id.

11Id. at 152.

12Id. at 154.

13Id.

14Id. at 175.

15Id. at 173 n.8.

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