WILMINGTON, Del. (Legal Newsline) - One of the main insurers for the Boy Scouts of America has asked the judge overseeing the organization’s bankruptcy to keep a closer eye on legal and professional expenses, which the company says threaten to consume more than half the $540 million value of the group’s estate.
Century Insurance, in a filing before a May 19 hearing on attorney compensation, complains that scores of lawyers and other professionals are charging the Boy Scouts more than $1,000 an hour, often for duplicative services. The Boy Scouts has estimated it paid out $100 million in professional fees by the end of February and the tab will exceed $150 million by the end of the month.
“If nothing is done to curb the professional fees in this case, lawyers for claimants, rather than their clients, stand to get the bulk of the money in this case,” Century said.
The insurer asked the bankruptcy court to modify an order under which a 20% holdback on fees is released at the end of the quarter to a system in which the holdback is distributed at the end of litigation and after the court has determined the fees are reasonable. With less incentive to drag out the proceedings and fight amongst themselves, Century says, the lawyers for the Boy Scouts, sexual abuse claimants and other parties should speed up the reorganization.
The Boy Scouts filed for bankruptcy in February 2020 to resolve what it estimated to be about 2,000 claims of sexual abuse but plaintiff lawyers soon flooded the group with tens of thousands of claims after recruiting clients with extensive nationwide advertising campaigns. Earlier this year, insurers Century and The Hartford asked Judge Laurie Selber Silverstein to investigate some of the 95,000 claims to make sure they are valid.
Heavy legal expenses are typical in mass-tort cases, including bankruptcies. Lawyers involved in the bankruptcy of Oxycontin manufacturer Purdue Pharma have been paid more than $300 million in fees so far and are billing at a rate of millions of dollars per month. Lawyers in the Flint water litigation are seeking $200 million of the $600 million Michigan taxpayers will pay to settle lead exposure claims, drawing fierce objections from some who say more of the money should go toward addressing health issues.
In the Boy Scouts case, insurers have an incentive to keep expenses low and challenge tort claims since they will ultimately foot much of the bill. The Hartford has already agreed to pour $650 million into the bankruptcy and Century is negotiating its own contribution. Plaintiff lawyers say their claims are worth $100 billion or more, however, leaving the two sides far apart.
In its filing, Century says “the die is loaded in favor of the lawyers already, as many of the state court counsel representing tort claimants here have signed up claimants to agreements that give their lawyers a 40% interest in each claim. “Simple math shows how a large chunk of the money put up by the estate will be consumed by attorneys if nothing is done to curb fees in this case.”
Under the current proposed plan of reorganization, the Boy Scouts and its local councils would contribute some $540 million to a trust to resolve claims. Assuming 40% contingency fees, at the current rate lawyers would grab $386 million of that $540 million Century says, without including what insurers add to the pot.
A court-appointed fee examiner has produced 2% in fee reductions, or about $731,000, for which the examiner has billed $173,000. (Among the improper bills the examiner identified were $5,600 for “reviewing media articles” and $18,000 in double-billing by one professional.)
An average of 250 professionals a month have submitted bills for work on the case, with more than 30 regularly billing at $1,000 or more per hour. One of the firms representing the Boy Scouts billed half the 29 lawyers it had on the case at more than $1,000 an hour, with the rest billing at more than $600 an hour.
The rates exceed what lawyers have charged in other abuse bankruptcies, the insurers say, citing cases involving the Catholic Dioceses of Wilmington and Buffalo where no lawyer billed more than $1,000 an hour.