Boy Scouts of America Is Bankrupt, But Not Because It’s Broke

The Boy Scouts of America is bankrupt. On Feb. 18, the 110-year-old congressionally chartered organization — whose members have included Neil Armstrong, Martin Luther King Jr., and four U.S. presidents — filed for Chapter 11 bankruptcy protection in Delaware, citing the mounting legal fees incurred by the 275 sex abuse lawsuits it currently faces and an additional 1,400 individual abuse claims that it knows about but have not yet been filed.

Yet the organization isn’t broke. In its bankruptcy petition, BSA estimated that it had between $1 billion and $10 billion in assets and less than $1 billion in liabilities. Instead, the Boy Scouts appear to be using bankruptcy to limit the the amount of money it will have to pay to settle its sexual abuse cases.

“This is not a traditional bankruptcy,” says Michael Mertz, a Chicago attorney who represents roughly 300 former scouts who say they were sexually abused. “Normally you declare bankruptcy when you have more debts than assets. I think this is an effort to use the courts to limit exposure to future claims.”

The Boy Scouts have been dogged by sexual abuse lawsuits for decades. One of the earliest cases dates back to 1977, when four New Orleans scoutmasters either pleaded guilty to or were convicted of sexually assaulting young boys. But it wasn’t until 2012 that the extent of the abuse — and BSA’s knowledge of it — became public. That year, the Oregon Supreme Court ordered the release of 1,200 confidential files that BSA had kept on suspected child abusers from the 1960s through the 1980s. Known within the organization as the “ineligible volunteer files,” the list included names of alleged abusers and what they were believed to have done. (Other files, dating back to the 1920s, have not been publicly released.)

The Boy Scouts of America did not respond to a request for comment, but in a 2018 interview with Bloomberg Businessweek, Michael Surbaugh, then the chief scout executive of the BSA, explained that the files were an ad hoc attempt to prevent pedophiles from moving from troop to troop. “This is in an era where there’s very little prosecution, there’s not going to be a court record, there’s no fax machine, no Internet, when something happens in a community generally the parents don’t want to report it. The police may not investigate,” Surbaugh said. “So we kept a list…. We had the ability to say, ‘You can’t be in our organization.’ ”

This system didn’t always work. For example, Thomas Hacker was arrested in 1961 and accused of molesting Boy Scouts in Indiana and was convicted of sexual assault of a minor in 1971. BSA placed him on its ineligible volunteer list, but Hacker was still able to join a new Boy Scout troop after moving to Illinois. (Hacker was againconvicted of sexually assaulting a Boy Scout in 1989.) After his name appeared in the Oregon files, 16 former scouts sued the BSA in 2013, alleging that the organization had failed to protect them from Hacker.

The Oregon files also caused insurance companies to stop paying BSA’s abuse settlements, because insurers said the files proved the organization had known what was going on.

The Boy Scouts’ legal liabilities worsened further last year when several states passed laws creating “lookback windows,” in which traditional statutes of limitations are suspended so that victims of childhood sex abuse can come forward. New Jersey’s window is currently open through the end of 2022, California’s through 2023. Mertz says these laws are helpful because in his experience, most victims of child abuse don’t come forward until their 40s, decades after the abuse has happened.

“Those laws were the beginning of the end” for the Boy Scouts, says Paul Mones, a California attorney who has represented hundreds of former Boy Scouts in sex abuse lawsuits. “Suddenly you had all these people who were now able to come forward and sue. In California, I can’t even count the number of cases I have now.”

By filing for bankruptcy, BSA may be able to effectively narrow its exposure from these lookback windows. During bankruptcy, a percentage of BSA’s assets will be used to reach settlements with abuse victims — but only those who’ve already filed lawsuits. “If you file after this time period, you’re out of luck,” says Mones.

In its petition, BSA has sought to avoid a “prolonged bankruptcy case” or proceedings that allow for “endless discovery,” so its bankruptcy case can be decided as quickly as possible. A similar tactic has been employed by the Catholic church.

That could be a problem for younger victims who have experienced abuse more recently and are not yet ready to come forward. According to the Boy Scouts, 90% of its pending cases involve abuse that occurred before 1988. The BSA says that’s because in the late 1980s it strengthened its system for protecting children. It now performs mandatory background checks and reports all complaints of abuse to authorities. “Does that mean it’s not a problem anymore?” asks Mones. “Maybe not in scope, but I just filed a case in San Bernardino about a kid who was molested in 2018. I have another from 2016.”

Even if the Boy Scouts succeed in curtailing future abuse claims, the organization still faces a financially precarious future. Over the years, the number of children participating in BSA’s various scouting programs has shrunk to about 2.2 million, or half of what it was in 1990. Efforts to expand BSA’s ranks by admitting gay and transgender scouts, as well as girls, have been only mildly successful. When BSA opened its Cub Scout program to girls in 2018, only 77,000 joined — making girls 6% of all Cub Scouts.

Meanwhile, this year the Church of Jesus Christ of Latter-day Saints, which for decades had been one of BSA’s largest sponsors, pulled 400,000 kids out of scouting over BSA’s decision to admit gay troop members. Without its Mormon members, BSA’s membership is expected to soon decline below 2 million for the first time since World War II. Membership fees and other dues are a primary source of revenue, so unless BSA comes up with a way to reverse its membership decline, it faces years of dwindling resources.

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