WILMINGTON, Del. (Legal Newsline) - Lawyers for insurers who will pay the billion-dollar-plus tab over sex-abuse allegations against the Boy Scouts of America pushed a bankruptcy judge to allow them to investigate some of the 95,000 claims filed against the organization, saying they suspect many are unsupported or downright fraudulent.
Attorney James Ruggeri with Shipwin & Goodwin, representing the Hartford insurance company, told U.S. Bankruptcy Judge Laurie Selber Silverstein at an hours-long hearing Feb. 17 that the Boy Scouts was flooded with thousands of claims in the final days before a deadline last November, many without any information indicating a connection to scouting, the name of the alleged abuser, or even whether the claimant suffered physical abuse.
Many of the claims were filed by a handful of small law firms operating together as the Coalition of Abused Scouts, with some lawyers signing hundreds of claims per day in what insurers say is a clear indication the claims weren’t fully investigated before filing.
“We have a problem in this case,” Ruggeri told Judge Silverstein. “And the problem is with the numbers.”
Going into bankruptcy last year, Ruggeri said, the Boy Scouts and its insurers assumed the proceedings would address less than 2,000 cases, given more than a decade of active litigation over abuse claims. But lawyers including well-known asbestos law firms Napoli Shkolnik and Marc J. Bern Assoc. financed nationwide ad campaigns on television and the internet to recruit tens of thousands of claimants before the November bar date.
“Now we have 95,000 claims -- I’ve never seen anything like this,” Ruggeri told the judge at a hearing in Delaware, where the Boy Scouts filed for reorganization. “Bankruptcy is not supposed to be used to increase the debtor’s liabilities. It’s supposed to distribute the debtor’s assets fairly to claimants.”
The insurance companies have asked Judge Silverstein to authorize discovery into some 1,400 claims, based on statistical sampling of seven buckets of claim types, including filings without an identified connection to scouting and filings without the name of an alleged abuser. The insurers say they would the use the results of that sampling to decide whether to mount bulk challenges to filings based upon those characteristics.
Plaintiff lawyers complained the insurers don’t have standing to probe the claims and there’s no need to do so now anyway. The claims are valid on their face if they include the name of an alleged victim and were filed properly with the court, plaintiff lawyers said.
“There’s a time and place for everything in a bankruptcy case,” said Eric Goodman of Brown Rudnick, representing the Coalition. “This is not the time and this is not the place for 96,000 personal injury claims to be liquidated.”
Judge Silverstein expressed skepticism about the insurers’ proposal to investigate a subset of claims and then apply the findings to larger groups. The practice of her court is to examine each claim in a bankruptcy, she said, and there could be cases in which a claimant has no obvious connection to the Boy Scouts but was nevertheless abused by a volunteer.
“Just because one claimant wasn’t affiliated with scouting, does that mean I can disqualify another claimant who says my brother was in scouting and I went to camp so-and-so and was abused?” the judge asked. “I can’t do that.”
The court will still make the final call on which claims are valid, Ruggeri said. The discovery process “goes to voting,” he said. Houston attorney Timothy Kosnoff, who formed the Coalition, said in an e-mail to another lawyer last year that if coalition members have 80% of the claims, “our coalition controls the case.” Bankruptcy courts submit plans of reorganization to a vote, based on the number and value of claims in each class of creditor.
“There’s going to be some sort of vote,” Ruggeri said. “And so the question is, do we allow this proceeding to be taken over and controlled by claimants I think don‘t have a right to vote?”
“I hear what you’re saying -- I don’t know what to do with it,” the judge said later.
“I’m looking at whether they’ve stated a claim with prima facie validity, regardless of whether or not it’s ultimately allowed.”
The judge will rule on the insurers’ motion at an unknown point in the future. The Boy Scouts have said it hopes to emerge from bankruptcy by the end of the summer.