Boy Scouts of America (BSA) is considering seeking Chapter 11 bankruptcy protection in the face of continuing litigation regarding sexual abuse claims, according to a report.
Citing “people familiar with the matter,” The Wall Street Journal reported that BSA has hired Sidley Austin LLP “for assistance with a possible Chapter 11 bankruptcy filing.”
Chief Scout Executive Mike Surbaugh issued a letter yesterday in anticipation of news reports that speculated on its finances.
He said the organization has an “important duty” to focus on keeping children safe and providing for youth programs. “To do so in perpetuity, we are working with experts to explore all options available to ensure that the local and national programming…continues uninterrupted,” Surbaugh wrote.
“We have a social and moral responsibility to fairly compensate victims who suffered abuse during their time in Scouting, and we also have an obligation to carry out our mission to serve youth, families and local communities through our programs,” he continued, without referencing any potential bankruptcy filing.
USA Gymnastics last week filed for Chapter 11 bankruptcy reorganization in the wake of scores of lawsuits claiming sexual abuse by former doctor Larry Nassar. Chapter 11 protection would stay litigation and allow negotiations with creditors while Chapter 7 bankruptcy sells off assets to pay lenders.
The Irving, Texas-based National Council cited anticipated litigation in its most recent annual report and specifically as far back as 2011 . “The National Council’s financial condition for 2018 and the next few years will depend, in large part, upon three factors,” the 2017 annual report noted, with the first being the outcome of litigation alleging inappropriate conduct by individuals serving in various capacities. The National Council reported total assets of $1.535 billion and total revenue of $242 million.
In 2017, the National Council reported spending some $11 million on three outside law firms, in addition to $1.1 million in legal expenses. That’s up from $5.3 million spent in the previous year with two firms and $38,678 in legal expenses.
Some sexual abuse cases have settled or damages awarded against Boy Scouts in recent years but not all have been covered by insurance carriers. In 2014, a Connecticut jury awarded an abuse victim $7 million. Another California case settled for an undisclosed sum in 2015.
An April 2010 case awarded $18.5 million in punitive damages and $1.4 million in compensatory damages against the National Council and a local council in Oregon. In August 2010, the case was settled for a lesser amount, with the majority of the settlement paid by insurance, according to financial statements. A portion of it was paid by the National Council with its self-insurance reserves. In March 2011, the National Council settled another case, which was not covered by insurance. That settlement also was not considered material to financial position, and the amount was included in the self-insurance reserves at Dec. 31, 2010.
Boy Scouts also has faced years of declining membership that’s likely to continue. The Church of Jesus Christ of Latter-day Saints (LDS) plans to end its century-old relationship with Boy Scouts by the end of 2019. About 28 of 266 local councils have LDS membership of 35 percent or more. Almost three-quarters of local councils are sponsored by churches of faith-based organizations.
The 2017 annual report counted 2.293 million members among its 266 local councils and National Council. Membership has been in steady decline for years, down almost 13 percent since 2011 and down by a third since 2000.
BSA also faces other litigation. Girl Scouts of the USA in November filed a trademark infringement lawsuit. Last year, the national board unanimously approved welcoming girls into the Cub Scout program, starting in the fall of 2018.
The move was one of a number of policy changes in recent years to try to overcome the decline in membership. In early 2017, Boy Scouts decided to accept members based on the gender identification provided on an individual’s application, opening the door to allow transgender boys. The shift came after the mother of a New Jersey boy filed a civil rights complaint, charging a local council with discrimination.
Starting in 2014, Boy Scouts allowed openly gay youth members after approval of voting members in 2013, and in 2015 removed a ban on openly gay employees and adult leaders.
