Boy Scouts Claim Changes Raise ‘Excusable Neglect’ Rule – Law360

Boy Scouts Claim Changes Raise ‘Excusable Neglect’ Rule – Law360

Dec 01, 2023

Law360 (November 20, 2023, 10:26 PM EST) — A Delaware bankruptcy judge on Monday  grappled with whether — and how — to correct mistakes made by hundreds of sexual abuse survivors in their claims against the Boy Scouts of America, as they now seek to change their choice from a quick $3,500 payout to a longer process potentially worth
millions of dollars.

U.S. Bankruptcy Judge Laurie Selber Silverstein questioned whether she should use the “excusable neglect” standard to evaluate whether she has the power to change the ballots that survivors used to select the expedited claims distribution.

“I have some things to consider. I’m going to take the time to do that,” said Judge Silverstein, adding that she would permit additional legal arguments based on questions she raised during the hearing to be filed by Dec. 8.

About 375 survivors were represented by various attorneys at Monday’s hearing after the claimants said they mistakenly checked the wrong box on their ballot two years ago when they voted on the Boy Scouts’ Chapter 11 plan. They are now asking the judge to let them change their choice.

Various claimants have said they never would have checked off the box for the expedited $3,500 payout if they had known they could not change it later. Some said they don’t remember checking the box, that the form was long and complicated, that they didn’t understand either what they were agreeing to or the ramifications of their choice, or that they didn’t learn until later that their claims were worth much more, citing a lack of information at the time they voted. A few said their signatures had been forged, and some attempted to change their vote by submitting subsequent ballots.

Barbara J. Houser, the retired bankruptcy judge overseeing the $2.5 billion settlement trust, has said that none of the governing documents — not the Chapter 11 plan, solicitation materials or trust distribution procedures — give her the authority to make such changes.

Some 82,000 claims have been filed with the trust, of which 7,300 selected the quick distribution. About 500 of those are seeking to now change their pick in some way, Houser  has said in court filings.

Houser’s counsel, Emily P. Grim of Gilbert LLP, also argued Monday that even Judge Silverstein does not have the authority to change claimants’ elections, because under Rule 60(b) of the Federal Rules of Civil Procedure, their one-year deadline to seek relief had passed after the court’s final order approving solicitation procedures more than two years ago.

Houser also argued that close to 5,000 claimants have not yet executed their releases for the expedited payouts, adding that there is “some concern they are watching what happens today and are preparing to file their own motions,” Grim said, noting that another such motion had been filed while the hearing was ongoing.

“We do see this as a wave coming,” she said, adding that such a change would put the trustee into “disarray” and suggesting that allowing the survivors to now alter their elections would also necessitate setting new deadlines for those submissions. “We want to make sure that we are not creating another issue by not providing enough time” to submit the much longer questionnaires required for standard and independent claims reviews. “Perhaps the trustee is putting in another hurdle for herself as to what she thinks she has to do,” Judge Silverstein replied. “Every dollar the trustee spends on this specific subset [of claimants] are dollars not going to the rest of the population,” Grim said.

“I’m not probably fully appreciating the harm to the other beneficiaries of the trust based on the administrative processing of these claims. But I’ll decide if I need more on that,” Judge Silverstein said.

Several lawyers for the survivors said they were not aware of other cases that spoke to the specific situation, arguing that the “excusable neglect” provision of Rule 60(b) should apply.

Because the plan itself does not address whether the expedited option can later be changed, “where we are today is a void,” argued Bernard G. Conaway on behalf of some clients of The Robert Pahlke Law Group and others who had filed motions. “Our clients agree the trustee doesn’t have the authority to do this. But it is our clear contention that the court does,” he said, adding that the court has equitable jurisdiction to fix mistakes and “make sure form doesn’t take precedence over substance.”

“I’ve been struggling with what the standard should be, assuming I can do it,” Judge Silverstein said.

The judge walked through the factors in the U.S. Supreme Court’s 1993 ruling in Pioneer Investment Services v. Brunswick Associates , including whether survivors had missed the deadline to seek changes.

“This all came to light when the trustee opened the portal up” in August, Conaway said. “That’s when most of these folks here found out that there was a classification problem.”

Judge Silverstein challenged Andrew Van Arsdale, whose firm represents more than 200 men seeking to change their choices, for not coming before the court sooner because the firm had declarations as early as January 2022 — before the plan voting deadline — from clients who said they had made a mistake on their initial ballot in electing for a quick payout.

“How does that meet the Pioneer standard of taking immediate action?” she asked him. “Your clients knew that they had made a mistake two years ago.”

“We thought we’d have an opportunity at a later point to do that,” Van Arsdale said. “We looked at it and saw nothing that would bar them from changing their election.” “Wow,” Judge Silverstein replied.

Michael P. Richman of Richman & Richman LLC, who represented 14 claimants of Mary Alexander & Associates PC, said, “It seems self-evident that they were confused and did not realize the legal implications” of the choice they made on their ballots. “Ballots are not supposed to require people to engage lawyers.”

Richman argued that Rule 9024 of the Federal Rules of Bankruptcy Procedure allows the court the “clear authority” to fix mistakes because “to correct injustice there isn’t even a time limit on when such a motion should be made.”
“I would be absolutely astonished if the court’s equitable authority could be overwritten by private agreements between parties,” he said.

In court papers and during the hearing, lawyers said that the parties had explicitly discussed in open court whether to include an opt-out provision in the Chapter 11 plan that would let victims later change their minds.

The provision never made it into the plan, but there were no objections at the time, which indicates that it should now be allowed, claimants’ lawyers said.

However, Grim said that “the omission was purposeful” because it was contemplated during hearings but then excluded from the plan.

“Our focus is on what could have been added and was not,” she said. The claimants are represented by Michael P. Richman of Richman & Richman LLC, Bernard G. Conaway of Conaway Legal LLC, Andrew Van Arsdale of AVA Law Group, Charles J. Brown III of Gellert Scali Busenkell & Brown LLC, Kristina Aiad-Toss of Babin Law LLC, Daniel K. Hogan of Hogan McDaniel, Joel M. Walker of Nye Stirling Hale Miller & Sweet LLP and Tyler H. Fox, among others.

The trustee is represented by Emily P. Grim and Sarah Sraders of Gilbert LLP. The case is In re: Boy Scouts of America and Delaware BSA LLC, case number 1:20-bk-10343, in the U.S. Bankruptcy Court for the District of Delaware.