The opinion
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: Chapter 11
BOY SCOUTS OF AMERICA AND Case No. 20-10343 (LSS)
DELAWARE BSA, LLC,
Debtors. (Jointly Administered)
Re: Docket No. 10808
OPINION
The matter before me is the most recent attempt of the Coalition of Abused Scouts
for Justice (“Coalition”) to have its professionals’ fees paid by the estate (or others}. By its
Motion! the Coalition seeks payment of $21,007,881.01 in fees and/or expenses (“Fees”)
billed to the Coalition by six firms: Brown Rudnick LLP (lead bankruptcy counsel),
Province, LLC (financial advisor), Parsons Farnell & Grein, LLP (insurance coverage
counsel), Monzack Mersky & Browder (bankruptcy co-counsel), Robbins, Russell, Englert,
Orseck & Untereiner LLP (litigation counsel), and Akin Gump Strauss Hauer & Feld LLP
(special litigation counsel) (collectively, “Coalition Professionals”). The Coalition contends
that the matter is governed by § 363 and/or §1129(a)(4), but alternatively seeks payment
under §503(b).
Mot, of Coalition of Abused Scouts for Justice for Entry of Order Approving Debtors’ Proposed
Payment of Coalition Restructuring Expenses, ECF No. 10808.
The Coalition supports the Motion with nine declarations: three filed by members of
the law firms that formed the Coalition,” two filed by Coalition Professionals,’ three filed by
the Future Claims Representative (“FCR”) and his counsel‘ and one filed by an attorney for
a member of the Ad Hoc Committee of Local Councils.” The Coalition also filed the
Axelrod Declaration,® which attached various transcripts of hearings in this and other cases.
Finally, the Coalition filed Verified Fee Statements of each of the Coalition Professionals.’
2 Motion Ex. B-1 (Decl. of Adam P. Slater in Supp. of Mot. of Coalition of Abused Scouts for
Justice for Entry of Order Approving Debtors’ Proposed Payment of Coalition Restructuring
Expenses), ECF No. 10808-3 (“Slater Decl.”); Motion Ex. B-2 (Decl. of Anne Andrews in Supp. of
Mot. of Coalition of Abused Scouts for Justice for Entry of Order Approving Debtors’ Proposed
Payment of Coalition Restructuring Expenses), ECF No. 10808-3 (“Andrews Decl.”); Motion Ex.
B-3 (Dect. of Kenneth M. Rothweiler in Supp. of Mot. of Coalition of Abused Scouts for Justice for
Entry of Order Approving Debtors’ Proposed Payment of Coalition Restructuring Expenses), ECF
No. 10808-3 (“Rothweiler Decl.”).
3 Motion Ex. B-4 (Decl. of Michael Atkinson in Supp. of Mot. of Coalition of Abused Scouts for
Justice for Entry of Order Approving Debtors’ Proposed Payment of Coalition Restructuring
Expenses), ECF No. 10808-3; Motion Ex. B-5 (Decl. of Gabriel J. Le Chevallier in Supp. of Mot. of
Coalition of Abused Scouts for Justice for Entry of Order Approving Debtors’ Proposed Payment of
Coalition Restructuring Expenses), ECF No. 10808-3.
4 Motion Ex. B-6 (Decl. of James L. Patton in Supp. of Mot. of Coalition of Abused Scouts for
Justice for Entry of Order Approving Debtors’ Proposed Payment of Coalition Restructuring
Expenses), ECF No. 10808-3; Motion Ex. B-7 (Decl. of Edwin J. Harron in Supp, of Mot. of
Coalition of Abused Scouts for Justice for Entry of Order Approving Debtors’ Proposed Payment of
Coalition Restructuring Expenses), ECF No. 10808-3; Motion Ex. B-8 (Decl. of Kami E Quinn in
Supp. of Mot. of Coalition of Abused Scouts for Justice for Entry of Order Approving Debtors’
Proposed Payment of Coalition Restructuring Expenses), ECF No. 10808-3.
5 Omnibus Reply in Supp. of Mot. of Coalition of Abused Scouts for Justice for Entry of Order
Approving Debtors’ Proposed Payment of Coalition Restructuring Expenses Ex. B (Decl. of
William S. Sugden in Connection with Mot. of Coalition of Abused Scouts for Justice for Entry of
Order Approving Debtors’ Proposed. Payment of Coalition Restructuring Expenses), ECF No.
11107-2.
6 Motion Ex. B-9 (Decl. of Tristan Axelrod in Supp. of Mot. of Coalition of Abused Scouts for
Justice for Entry of Order Approving Debtors’ Proposed Payment of Coalition Restructuring
Expenses), ECF No. 10808-3.
7 Motion Ex. C (Verified Fee Statements), ECF No, 10808-4.
Two objections were filed to the Motion. Both were resolved prior to the hearing by
language added to the proposed form of order.* The Lujan Claimants sought to ensure that
any order entered on this Motion could not negatively impact their appeal of the
confirmation order currently before the Third Circuit.? The Office of the United States
Trustee’s (“UST”) objection was primarily based on the relevant legal standard but also
pointed to: (i) a lack of evidence of a substantial contribution, (11) the number of key
constituencies in the case that contributed to the confirmation of the plan and (iii) the
Coalition’s self-interest sufficient to defeat recovery under Lebron," □
The Official Committee of Tort Claimants (“TCC”) filed a Response” to the
Motion. While not objecting to the ultimate relief requested, the TCC took umbrage with
the Coalition’s recitation/characterization of the TCC’s role in the bankruptcy case and
provided a counter-natrative to that portrayed by the Coalition. In its Omnibus Reply”, the
Coalition defended the statements made in the Motion and further distinguished itself from
the TCC.
§ Certification of Counsel Regarding Mot. of Coalition of Abused Scouts for Justice for Entry of
Order Approving Debtors’ Proposed Payment of Coalition Restructuring Expenses, ECF No. 11092.
9 Lujan Claimants’ Limited Obj. and Joinder in United States Tr.’s Obj. to Mot. of Coalition of
Abused Scouts for Justice for Entry of Order Approving Debtors’ Proposed Payment of Coalition
Restructuring Expenses, and Reservation of Rights, ECF No. 10941.
© United States Tr.’s Omnibus Obj. to Payment of Compensation and Reimbursement of Expenses
for Movants Filed Dec, 29, 2022, ECF No. 10944 (citing Lebron v, Mechem Fin., Inc., 27 F.3d 937 □□
Cir. 1994)). The language crafted to resoive the UST’s objection provides that the award of fees is
under § 503(b)(9) subject to the ability of the Fee Examiner and the UST to review the fees and
object on all grounds other than that the substantial contribution standard was satisfied.
"Resp. of Off. Comm. of Tort Claimants to Mots. by Coalition and Pfau/Zalkin for Payment of
Restructuring Expenses, ECF No. 10861.
22 Omnibus Reply in Supp. of Mot. of Coalition of Abused Scouts for Justice for Entry of Order
Approving Debtors’ Proposed Payment of Coalition Restructuring Expenses, ECF No. 11107.
The Boy Scouts of America and Delaware BSA, Inc. (“BSA” or “Debtors”) did not
file anything.
At a hearing held on April 19, 2023, I heard argument, but no additional witness
testimony was offered. I took the matter under advisement. This is my decision.
Jurisdiction
Jurisdiction exists. 28 U.S.C, § 1334. This is a core proceeding. 28 U.S.C. § 157(a),
{o).
I. The Standard
I recently grappled with the relevant standard to apply to a request to pay fees and
expenses of an ad hoc committee. In a bench ruling in the Kidde-Fenwal case,'’ I determined
that (i) § 363 is the procedural mechanism by which a debtor seeks this relief, (i) § 503(b) 1s
the procedural mechanism by which a creditor seeks this relief and (iii) sections 363 and 503
are not mutually exclusive (i.e. a request under § 363 is not prohibited because of the
existence of § 503) nor are they contradictory (so resort to judicial canons of construction is
unnecessary). In doing so, I was persuaded by district court decisions in Bethlehem Steel"
and Mallinckrodt.”
In my bench ruling, I also noted that the more difficult analysis is how to judge
a § 363 request of this nature. My thinking remains the same:
In my view, the more difficult question is whether to approve the request
under section 363. The court may approve a request under section 363 if itis a
proper exercise of the debtor’s business judgment. As I stated during argument,
given that section 363 requires notice and a hearing as well as court approval, I agree
3 placed my bench ruling on the docket. Bench Ruling, Jn re Kidde-Fenwal, Inc., No. 23-10638
(Bankr. D. Del. Nov. 7, 2023), ECF No. 601 (“Kidde-Fenwal Bench Ruling”).
In ve Bethlehem Steel Corp., No, 02-2854, 2003 WL 21738964 (S.D.N.Y. July 28, 2003).
In re Mallinckrodt PLC, No. 21-167, 2022 WL 906458 (D. Del. Mar. 28, 2022).
with those judges who carefully weigh all supporting and opposing views and
determine in the court’s judgment, whether the debtor’s decision makes good
business sense. Here, as the UST points out, Debtor's decision is not an operational
one to which greater deference may be owed. Rather, as [debtor’s chief
transformation officer] articulates it—the decision is a strategic one about what
Debtor believes may pave a more efficient path to an exit.
In considering Debtor’s decision, then, I have to evaluate Debtor’s judgment
in this case. In doing so, it is appropriate to consider the existence of section 503 as
an alternative for a creditor to pursue. That this consideration is appropriate is
evident from the decisions made in other cases, including the bankruptcy courts’
respective decisions in Purdue and in Mallinckrodt (at least as I glean from a reading of
the transcripts’). In each of those cases, the court did not accept the fee payment
arrangement as originally proposed by the debtor. Rather, the courts recognized the
challenging situation of determining, in the circumstances of the case before them,
whether the expenditure of a debtor’s funds to pay these expenses, which
diminishes-—-or could diminish—funds available to pay creditors, is a best use.
Therefore, in both Purdue and Mallinckrodt, which are most analogous, after hearing
concerns raised by objectors, the court added additional conditions on payment.
Those additional conditions permitted a backwards looking view at the time of
payment to see if the ad hoc committee’s actions, as anticipated when the section 363
motion was approved, benefited all of the parties in the case and/or whether the ad
hoc committee was constructive, generally. For example, in Mallinckrodt, Judge
Dorsey imposed two additional requirements. One: if mediation fails and there are
no further prospects for a mediated resolution, all reimbursement of fees and costs
would cease. Two: if the mediator advised the court that an ad hoc group was not
participating in the mediation in good faith, all reimbursements would cease and any
fees and expenses previously paid would be subject to disgorgement following notice
and an opportunity for a hearing.” Those conditions bring the standard of review on
fees requested by ad hoc committee professionals closer to a general administrative
claim or substantial contribution standard then to a review of professional fees under
section 330. As noted in Perdue, additional safeguards put the ad hoc committee at
some risk.*!®
@ See In the Matter of Purdue Pharma L.P., Case No. 12-23649 (Drain, J.), 11/19/2019 Transcript of
Oral Argument, Dkt. No. 550; see also In re Mallinckrodt PLC, Case No. 20-50850 (Dorsey, J.),
1/19/2021 Transcript of Court Decision, Dkt. No. 1189.
□ Mallinkrodt, Transcript of Court Decision at 11:21-12:9.
© Purdue Pharma, Transcript of Oral Argument at 167:7-19.
Here, the Motion is brought by the Coalition, not Debtors; accordingly, the proper
procedural mechanism is § 503.
16 Kidde-Fenwal Bench Ruling 5-7.
The Coalition seeks to avoid this conclusion by arguing that J should consider
previous requests by Debtors for permission to pay the Fees. The Coalition first points to
the inclusion in a Restructuring Support Agreement (“RSA”) of BSA’s commitment to fund
the Fees.’ A term sheet attached to the RSA provided for payment of “reasonable,
documented and contractual” fees of the Coalition’s professionals of up to $950,000 per
month from the effective date of the RSA through the effective date ofa described plan. It
also provided for reimbursement of fees already paid to Coalition Professionals from July
24, 2020 to the effective date of the RSA of up to $10.5 million.” For the reasons set forth
in my August 19, 2021 bench ruling, I declined to approve the RSA as submitted because of
two features—the Coalition Fee request and the findings requested related to the first
Hartford settlement.” At that time, I held that while debtors can use § 363 as a vehicle to
bring a request to pay an ad hoc committee’s fees, the standard to apply in reviewing the
request is the § 503 substantial contribution standard. I then expressed multiple concerns
about making such a finding at that time, including: (i) that the Coalition represented the
same constituency as the TCC, (ii) the fee arrangement with members of the Coalition and
(iii) whether the Coalition met the standard for making a substantial contribution.
Ultimately, the parties abandoned Debtors’ request to enter into and perform under the
'7 Debtors’ Mot. for Entry of Order, Pursuant to Sections 363(b) and 105(a) of Bankruptcy Code, (1)
Authorizing Debtors to Enter into and Perform under Restructuring Supp. Agreement, and (ID)
Granting Related Relief, ECF No. 5466 (“RSA Mot.”).
18 Ex, A at 19 (Boy Scouts of America Reorganization Term Sheet) to Ex. | (Restructuring Supp.
Agreement) to RSA Mot. Ex. A (Proposed Order), ECF No. 5466-2.
Aug. 19, 2021 Hr’g Tr. 19:2-28:7, ECF No. 6098.
RSA because no order was filed after the hearing. The RSA does not serve as a continuing
request by Debtors to pay the Fees pursuant to § 363.
The Coalition next points to a sentence in Article V.T.1 of the Plan,” which was
drafted in response to my announcement at the disclosure statement hearing that I would
not consider the Coalition Fees as part of the confirmation hearing. Neither this provision
nor the referenced portion of my comments at the disclosure statement hearing”! aid the
Coalition. A review shows no “mandate” that the Coalition file a motion,” only that an
appropriate motion be filed.” Debtors did not file the Motion. Debtors did not submit an
affidavit in support of the Motion. Debtors did not testify at the hearing on the Motion.
Debtors’ counsel did not speak in support of the Motion. It is difficult to conciude,
therefore, that § 363 is the appropriate standard.‘
20 Motion 35 n.22 (quoting, in part, Third Modified Fifth Am. Chapter 11 Plan of Reorganization
(with Technical Modifications) for Boy Scouts of America and Delaware BSA, LLC, at Article
V.T.1, ECF No. 10296):
The requirement that a separate motion be filed with the Bankruptcy Court shail not in any
way prejudice or limit the payment of the Coalition Restructuring Expenses under the Plan
and/or pursuant to sections 363(b), 1129(a)(4) and 503(b) of the Bankruptcy Code, Bankruptcy
Rule 9019, or otherwise applicable bankruptcy and non-bankruptcy law or determine what
standard should be applied to determine approval of the Coalition Restructuring Expenses.
4 7d. (citing Sept. 29, 2021 Hr’g Tr. 105:4-107:12, ECF No. 6437).
2 Omnibus Reply 28.
See also In re Boy Scouts of America and Delaware BSA, LLC, 642 B.R. 504, 678 0.763 (Bankr. D, Del.
2022) (“Debtors agreed to separately move for approval of their settlement with Pachulski Stang.
Similarly, Debtors’ agreement with respect to the Coalition’s fees will be brought separately. All
patties’ rights to object to these resolutions is preserved.”).
24 While the Motion says it is brought under both § 363 and § 1129(a)(4), the Coalition does not
discuss the confirmation standard by which the request should be judged or how the fees should be
reviewed for “reasonableness.” At least one court has held that § 1129(a)(4) does not serve as a basis
to make a payment, rather, it establishes a requirement that any payments to be made pursuant toa
plan be reasonable. See In re Lehman Bros, Hidgs, Inc., 508 B.R. 283, 294n.9 (S.D.N.Y. 2014).
Ultimately, however, the standard—as applied here—does not dictate the outcome.
As I have laid out above, even if § 363 is the appropriate standard, [ am required to
determine whether the debtor is properly exercising its business judgment and to bring the
court’s independent judgment to bear on that issue. That determination may properly
consider the role of the ad hoc committee, its contributions (or expected contributions) to
the case, the specific circumstances of committee formation and what ability parties and the
court will have to consider specific requested fees. The court does not merely rubber stamp
a debtor’s decision. At the RSA hearing, I expressed multiple concerns about approving the
Coalition’s fees. Those concerns still resonate and are, in fact, confirmed by the
submissions made on the Motion.
ll. The Evidence/Court Observations”
A. The Formulation of the Coalition and the TCC
The evidence, in the form of the multiple declarations, supports the Coalition’s
natrative that it was a significant player in the bankruptcy case and worked constructively
toward the confirmation of a plan. The declarations submitted by Coalition-related
declarants focus on the Coalition’s role in settlements with several insurance companies and
the Ad hoc Committee of Local Councils. The declaration submitted by the FCR and his
professionals as well as Mr. Sugden also attest to the constructive nature of the Coalition
and point to specific “key accomplishments” they ascribe to the Coalition.” That the
25 As the Coalition notes, “[t]he record on a substantial contribution motion includes the entire
record. ‘throughout the entire chapter 11 case,’ including the Court’s own observations.” Omnibus
Reply 4 n.7 (citing In re M&G USA Corp., 599 B.R. 256, 262 (Bankr. D. Del. 2019); In re Deval Corp.,
592 B.R. 587, 599 (Bankr. E.D. Pa. 2018)).
26 Many of these declarations contain similar, if not identical, language in describing the nature of
the case and the Coalition’s contributions.
Coalition played a major and constructive role in the case is really not in dispute and is
consistent with my observations of the dynamics of the case since the Coalition was formed.
What is also consistent with my observations of the dynamics of the case, however,
is the different (and somewhat combative) way in which the Coalition and the TCC describe
each other’s contributions in their respective submissions. The TCC’s Response suggests
that the Coalition “minimize[s] or denigrate[s]” the TCC’s “significant role” in the case and
that “[t]he TCC should not need to be ‘pushed down’ so that others may ‘rise.’””” The
Motion suggests that the '[CC’s position with the Ad Hoc Committee of Local Councils led
to an impasse (impliedly, insurmountable) without the intervention of the Coalition. In the
Coalition’s Omnibus Reply, the Coalition continues to take primary, if not sole, credit for
many of the milestones in the case while contending it is accurately describing the relative
roles of the two committees.
That this combative relationship exists is not surprising. The Coalition appeared in
the cases on July 24, 2020-—-approximately four months after the bankruptcy filing. Certain
personal injury law firms (“PI Firms”) that determined to form the Coalition were once
“affiliated” with the TCC.” Once formed, the Coalition immediately hired the cadre of
professionals typically retained by a committee of tort claimants in a bankruptcy case (e.g.
restructuring counsel, financial advisors, insurance counsel and litigation counsel) mirroring
27 Response 3.
Slater Decl. | 2 (“The Coalition was formed by certain law firms that were once affiliated with the
Official Committee of Tort Claimants (the “TCC”). These firms believed that absent a serious
intervention, the Debtors would not reach settlements required for the Debtors to maximize value
for Survivors and confirm a global resolution plan.”); Andrews Decl. | 2 (same); Rothweiler
Decl.§ 2 (same). While no declarant states it in this fashion, it would appear that their clients were
getting outvoted in discussions on TCC strategy for the case,
in skill set the team of professionals hired by the TCC. And, as gleaned from a review of the
‘Verified Statements, the Coalition proceeded to engage in every aspect of the bankruptcy
case.
While the membership of an ad hoc group is not typically the subject of significant or
extensive hearings, it can be-~—and it was here. The Coalition sought to participate in the
proposed global mediation (i.e. become a Mediation Party), which was opposed by the
TCC. Further, certain insurers asserted that the Coalition was not complying with Federal
Rule of Bankruptcy Procedure 2019 as its submissions were heavily redacted. The details of
the structure of the Coalition evolved over the course of the several-month litigation. As
described in a bench ruling addressing the sufficiency of the Rule 2019 statements,
ultimately: (i) the members of the Coalition are survivors who signed a written
acknowledgement placed on the docket, (ti) the survivors are all clients of one (or more) of
the ten PI Firms identified in a supplemental declaration filed by the Coalition, (iii) the PI
Firms, not the Coalition members, instruct Coalition Professionals as to positions to be
taken in the case, (iv) the PI Firms chose five survivors to comprise an advisory board,
which meets with the PI Firms to deliberate actions taken by the Coalition and (v) the
Coalition’s Professionals represent the collective, not any individual survivor. At the time
of my bench ruling, there were approximately 7,500 survivors who had signed the written
acknowledgment. Brown Rudnick represents that there are currently over 18,000
members.”
2° Statement of Brown Rudnick LLP as Co-counsel for Coalition of Abused Scouts for Justice,
Regarding Professional Services Rendered and Expenses Incurred from July 21, 2020 Through
October 31, 2022, at 10, in Mot. Ex. C-1 (Brown Rudnick Statement), ECF No. 10808-4 (“Brown
Rudnick Statement”).
10
As part of their Rule 2019 submissions and in support of becoming a Mediation
Party, the Coalition represented:
11. Coalition Counsel are being paid by State Court Counsel. Coalition
Members will not, in any way, be responsible for the fees of Coalition Counsel.
See Exhibit A-2, A-4 (“I further acknowledge and agree that a portion of the fees
and expenses incurred by Brown Rudnick and MMBH will be paid by [FIRM] and
any payment of such fees and expenses by [FIRM] will not increase the fees and
expenses owed by me under the terms and conditions of my Employment Agreement
or Retainer Agreement with [FIRM].*°
Further, the Request for Written Acknowledgement sent to and signed by each member
provides that the survivor acknowledges and agrees that the PI Firm representing him will
pay a portion of the fees and expenses incurred by the Coalition’s law firms and will not
increase fees and expenses he owes the PI Firm.”
30 Second Am. Verified Statement of Coalition of Abused Scouts for Justice Pursuant to Bankruptcy
Rule 2019 5, ECF No. 1429 (“Verified Statement”) (emphasis in original).
3! Verified Statement Ex. A-4 (Written Request for Acknowledgment), ECF No. 1429-1. The
complete acknowledgement reads:
Request for Written Acknowledgment
I acknowledge and agree that [FIRM] has joined, as a representative for its clients, the Coalition
of Abused Scouts for Justice (the “Coalition” or the “Ad Hoc Committee”), an ad hoc
committee representing the collective interests of its members (1.e., Boy Scout sexual abuse
victims) in the Boy Scouts Chapter 11 jointly administered bankruptcy cases pending before the
United States Bankruptcy Court for the District of Delaware, Case No. 20-10343 (the “Chapter
11 Cases”). I further acknowledge and agree that the Coalition has retained experienced
bankruptcy counsel, Brown Rudnick LLP (“Brown Rudnick”), and Delaware counsel, Monzack
Mersky Browder and Hochman, P.A. (““MMBH”), to represent the collective interests of its
members. I further acknowledge and agree that I have been provided with access to and an
opportunity to review a copy of the Coalition’s Confirmation of Engagement with Brown
Rudnick dated July 21, 2020 and the Coalition’s Engagement Agreement with MMBH dated
September 13, 2020 (together, the “Engagement Letters”), and that I consent and agree to
becoming a member of the Ad Hoc Committee in accordance with and subject to the terms of
the Engagement Letters. I further acknowledge and agree that a portion of the fees and expenses
incurred by Brown Rudnick and MMBH will be paid by [FIRM] and any payment of such fees
and expenses by [FIRM] will not increase the fees and expenses owed by me under the terms
and conditions of my Employment Agreement or Retainer Agreement with [FIRM]. I have had
an opportunity to consult with my legal counsel about the terms of the Brown Rudnick and
11
The PI Firms also filed redacted versions of their retention agreements with their
clients, Some, but not all, of their agreements provide that the only forum in which the firm
will represent its client is in the bankruptcy proceeding.” In the Motion, the Coalition says
MMEBH engagement and my participation as a member of the Coalition. I further acknowledge
and agree that [FIRM] has authority to represent my interests and to direct and instruct Brown
Rudnick and MMBH in connection with the activities of the Coalition and the Chapter 11
Cases, and to engage and retain on the Coalition’s behaif, and at no additional cost to me, other
professional advisors, including, without limitation, financial advisors and insurance counsel, to
assist the Coalition in its efforts.
Executed on [ ] , 2020 By:
See eg. AIS Professional Employment Agreement in Verified Statement Ex. A-3 (State Ct.
Counsel Exemplar Engagement Letters), ECF No. 1429-1 (emphasis in original).
II. Scope of Representation: By signing this Engagement Agreement, you understand and agree
that AIS Counsel is committing to represent you only in connection with the February 18, 2020
bankruptcy filing, or a related global resolution of sex abuse claims against BSA. You have the
right to terminate the representation at any time, subject to our right to recoup fees and expenses
as provided by law.
See also Boy Scouts of America~~-Attorney-Client Agreement in Verified Statement Ex. A-3 (State
Ct. Counsel Exemplar Engagement Letters), ECF No. 1429-1 (emphasis in original).
i. LIMITED REPRESENTATION. Client retains the Firms [Andrews & Thomton, AAL,
ALC and ASK. LLP] for the limited purpose of filing of bankruptcy claims against BSA.
This limited representation includes the following:
a. Finms are not bringing any claims outside of bankruptcy proceedings. Firms are only
handling the processing of Client’s claims against BSA. This means that Firms will not be
filing any lawsuits or bringing any claims against any party outside of the bankruptcy
process, including but not limited to any parents, volunteers, outside organizations, or other
individuals. If Client wishes to pursue any claims against any entity outside of the
bankruptcy court process, Client will need to immediately hire separate counsel.
b. Firms are not taking action to preserve claims or protect the statute of limitations. A
statute of limitations is the legal deadline within which you must file a civil claim. If Client
does not file a claim within the applicable statute of limitations, Client’s claim may be lost
forever. Client understands that Firms are not taking any action to file claims against any
parties within the applicable statute of limitations. Ifthe statute of limitations expires after
you have signed this agreement but before another responsible entity declares bankruptcy,
your bankruptcy claim may be lost forever, If Client wishes to preserve claims and not have
them lost forever because the statute of limitation has expired, Client will need to
immediately hire separate counsel.
12
the law firms that formed the Coalition “brought approximately 75% of the Survivors to the
table.”*
B. The Requested Fees
The fee submissions made by the Coalition Professionals are voluminous and
generally detail the services provided. While I have not reviewed them line-by-line, even a
cursory review of the submissions confirm that the Coalition involved itself in every inch of
the case. The Brown Rudnick submission breaks its fees into thirteen categories that cover
the range of services any estate professional would provide: Case Administration, Meeting
and Communications with Creditors, RSA, Plan and Disclosure Statement, Mediation,
Organizational Matters, Claims and Proofs of Claim, Assumption and Rejection of Leases,
Contested Matters and Adversary Proceedings, TCC-Kosnoff, 2004 Defense, Estimation
and Fee Statement.”
The description of these categories in Brown Rudnick’s submission reveals services
provided to the Coalition that were for the benefit of PI Firms. For example, Brown
Rudnick says the Coalition “played a lead role in responding to a motion filed by the
Debtors to amend their bar date order requesting an unlawful prior restraint on speech
between all attorneys worldwide and their prospective clients regarding the process and
potential outcomes in these Chapter 11 Cases.”*”? The challenged speech was to certain PI
Firm’s individual advertising programs designed to generate chents. Also in that category,
33 Motion 3.
#4 Each of these categories is descriptive though somewhat broad. For example, in the Mediation
category there are entries regarding plaintiff law firm advertising, a supplemental bar date motion
and Rule 2019 issues. Similar entries appear in the Organizational Matters category.
Brown Rudnick Statement at 11.
13
is the Coalition’s “lead role in seeking amendment of the bar date order to permit electronic
signatures and signatures of attorneys.”*° The purpose of this request was to aid survivors
and/or their PI Firms in submission of individual survivor claims. Similarly, Brown
Rudnick records time opposing Century and Hartford’s “Rule 2004 discovery on Survivors
and their counsel alleging in effect widespread fraud.”*’ Like the first amendment issue, the
Rule 2004 discovery was not directed to the Coalition as an ad hoc committee, but to
individual survivors and their PI Firms.
The Brown Rudnick submission also reveals at least one category of unnecessary
services. For example, the TCC & Kosnoff category is for services on a subject that
Debtors’ professionals were aggressively pursuing on behalf of the estate. There was no
need for the Coalition to join in for this matter to be submitted to the court and resolved.
More, generally, many of the services provided supplemented or overlapped with services
provided by Debtors’ professionals or duplicated services provided by the TCC’s
professionals although the Coalition and TCC often took opposing views.
Evident from the submission, and confirmed at the hearing on the Motion, is that
Brown Rudnick took no time culling through the Coalition Professionals’ time records,
Rather, the Coalition seeks reimbursement of ail time spent on the engagement, subject only
to the negotiated cap.
I. Application of the Law
The Coalition does not meet any standard for reimbursement of fees. Its failure to
review the Verified Fee Statements to assess which services were beneficial to the estate or
38 Id.
Td. at 13,
14
were at least reasonable dooms its request. More fundamentally, however, the Coalition’s
contribution did not transcend its self-interest, services rendered were duplicative and any
reimbursement runs counter to the Coalition’s representations to the court, and more
importantly, its promise to its members.
A party may be entitled to reimbursement of its fees and expenses under § 503(b){4)
if its efforts resulted in “an actual and demonstrable benefit to the debtor’s estate and its
creditors.”*? Even so, because a creditor is presumed to be acting in his own self-interest,
the court must conclude that the creditor’s actions were “designed to benefit others” in order
to award fees as a substantial contribution.” This standard is a compromise between the
“twin objectives” of encouraging “meaningful participation by creditors in the
reorganization process” and minimizing administrative expenses to preserve assets for
creditor recoveries.” Accordingly, § 503(b)(4) is narrowly construed.”
Courts applying the standard consider multiple factors, including: “1) whether the
services were rendered solely to benefit the client or to benefit all parties in the case; 2)
whether the services provided direct, significant and demonstrable benefit to the estate; and,
3) whether the services were duplicative of services rendered by attorneys for the committee,
the committees themselves, or the debtor and its attorneys.”” Further, “[r]eimbursement is
38 Lebron, 27 F.3d at 944 (citation omitted).
% Id. at 946.
40 at 944 (citation omitted).
“In re Worldwide Direct, Inc., 334 B.R. 112, 122 (Bankr. D. Del. 2005).
” In re Buckhead Amer, Corp., 161 B.R. 11, 15 (Bankr. D. Del. 1993) (citing Jn re Jack Winter Apparel,
Inc., 119 B.R. 629, 633 (E.D. Wis. 1990) (internal citation omitted),
15
improper where the activities of the interested parties are designed to serve primarily their
own interests and would have been undertaken without an expectation of reimbursement
from the estate.” The creditor has the burden of making its case by a preponderance of
the evidence.
As set forth above, no party really argues that the Coalition Professional’s services
were not constructive or did not provide a benefit to the estate. Here, the real issues are
whether the services duplicated those of estate professionals and whether the services
transcended self-interest.
The Coalition argues that it did not duplicate the work of Debtor or the TCC relying
on its role in the settlements reached with Century, Hartford, Zurich and Clarendon. The
Coalition contends: “[t]o state the obvious: the TCC was not involved in the negotiations
that took place between mid-August and December of 2021” and that the settlements with
the insurers were “then brought to the Debtors towards the end of the process after material
terms were agreed to and the agreements themselves were largely drafted.”“ The Coalition
then argues that “the unique circumstances of this case required the Coalition—as the
representative voice for nearly 75% of the Survivors—to vigorously take the laboring oar on
all of these settlements and drive these Chapter 11 Cases to a successful conclusion.”
Again, assuming all of this to be true does not lead to the conclusion that services
provided by the Coalition did not duplicate the role that Debtors or the TCC played in the
43 Worldwide Direct, 334 B.R. at 121 (quoting In re Essential Therapeutics, Inc., 308 B.R. 170, 174
(Bankr. D. Del. 2004).
4 Motion 40-41,
4 Id. at Al.
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case. Debtors and the TCC were statutorily charged with reaching resolutions they believed
appropriate and driving the case to a conclusion. Moreover, the Fees do not merely
encompass work performed on the multiple settlements during the mid-August to December
2021 timeframe. Rather, the Fees span the period from July 21, 2020 through October 31,
2022 and cover work far beyond the scope of the settlements. The Fees include everything
from case administration to the plan and disclosure statement, work that certainly was
within the purview of Debtors and/or the TCC. The Coalition’s “soup to nuts” approach to
the case mirrored the work of an official committee.*°
Moreover, the Coalition has not shown that its work transcended self-interest. In
discussing this factor, the Coalition discounts any suggestion that its work primarily
benefited its membership—the 18,000 survivors. Instead, the Coalition focuses on the PI
Firms and their interests. The Coalition states:
The Coalition firms could have litigated thousands of Abuse Claims against Local
Councils and Chartered Organizations in state court. This path may have resulted in
fewer Survivors receiving compensation, but the ability to obtain punitive damages
and high verdicts could have placed each of the Coalition firms in a comparable
place in terms of their overall recovery. The Coalition firms had multiple options,
each of which would have been consistent with their own economic interests. ‘The
Coalition here chose a path that saved the Boy Scouts, made it possible for the
Debtors to reorganize, and created a multi-billion settlement fund for Survivors—all
while taking intense fire from objecting parties.”
4 Similarly, the proffered argument that the Coalition and TCC were at odds on key parts of the
plan does not dispel the notion of duplication. Each pursued different strategies and had a different
view of settlements, but the TCC and the Coalition each performed the same work to be in a
position to make their respective assessments and interact with the other players in the case.
Ultimately, the Coalition did not succeed on its own in obtaining the vote it believed necessary to
confirm the plan. The support of the TCC and those survivors who supported the TCC’s position
was required to obtain the 85% acceptance of the survivor class.
47 Motion 42 (emphasis added).
17
First, this argument appears to be counter-factual, at least with respect to some of the PI
Firms. As detailed supra, at least some of these firms had retamer agreements limiting their
engagement to pursuit of claims in the bankruptcy case, warning survivors that the firms
were not taking actions against other organizations and that statutes of limitations could
expire on such suits. These firms, therefore, had one interest—to maximize recoveries (and,
therefore their fees) in the bankruptcy case. Indeed, the sheer number of clients (represented
to be approximately 60,000) suggests that even those PI Firms without limited engagements
would make more in a bankruptcy proceeding. From this viewpoint, representing 75% of
the survivor constituency makes it difficult to find that the Coalition was not acting in its
own self-interest: the interests of survivors, not the PI Firms.
Second, as discussed supra, certain of the services provided by Coalition
Professionals clearly were for the benefit of the PI Firms who would have had to respond (or
not) to motions challenging their actions or those of their clients. The Coalition’s efforts
meant that the PI Firms did not need to expend their own time, or could expend less time,
on these issues. But, Survivors are already paying their respective PI Firms to pursue their
claims, which includes filing proofs of claims. And, neither the estate (nor creditors) should
pay to sort out the PI Firm’s respective advertising decisions, While the PI Firms’
organization as a group may have assisted Debtors in resolving matters by providing a
single point of negotiation, that, alone, is not sufficient to justify reimbursement of fees on
these types of issues.
Moreover, in considering this request, I take into account a factor not present in
other cases cited to me: in signing up members, survivors were told that the Fees would be
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paid by the PI Firms and that survivors’ fees and expenses would not increase.* The
Coalition also represented to the court in the context of the Rule 2019/Mediation Party
dispute that: “Coalition Counsel are being paid by State Court Counsel” and that
survivors would not--in any way—be responsible for the fees of Coalition Professionals.
Here, remmbursement of the Coalition’s Fees will be borne two-thirds by the Settlement
Trust and one-third by the reorganized Debtors.” If the Motion is granted, members of the
Coalition are paying part of the Fees.*°
Finally, the Coalition suggests that the UST’s objection to the Motion (and, by
extension, any denial of the Motion) does not promote reorganizations. The Coalition
suggests that the formation of ad hoc groups, in and of itself, is a sign of unusual
circumstances and a need to go outside “the fold” of an official committee.*! While this
seems apparent to the Coalition, it is not to me. Here, certain PI Firms chose to break from
their clients on the official committee and form a separate group due to disagreements over
strategy. Paying fees of a splinter group from estate funds does not encourage resolution of
4% See also Oct. 14, 2020 Hr’g Tr. 34:23-35:2, ECF No. 1540 (“Your Honor, we also have
acknowledged in our papers that the individual survivors be Coalition members themselves are not
responsible for payment of the Coalition fees and expenses, that the professionals, those fees are
being paid by state court councils directly.”) id. at 40:21-41:9 (“So, Your Honor, especially given
now that the membership of the Coalition is restricted to the members that sign affirmative consents,
and those affirmative consents, Your Honor . . . acknowledged that the fees and expenses will be
borne by the State Court Counsel, ...”). Any agreement with the UST in resolving concerns over
the Rule 2019 submissions reserving the right of the Coalition to make a substantial contribution
claim or otherwise be paid by the estate does not erase the agreement made with members or the
representations made to the court.
% Apr. 19, 2023 Hr’g Tr. 25:8-12; 33:6-10, ECF No. 11131 (“[O]ne-third goes to Boy Scouts, two-
thirds goes to the Trust.”).
50 Td.
*! Omnibus Reply 31.
19
intra-committee disagreements. Were this to become an accepted practice, it could lead to
debtors not only choosing their adversaries—but paying them.
Further, by any measure, the PI Firms had a hefty financial incentive to participate
in the BSA bankruptcy case because of their own stake in the recoveries of their clients.
Typical contingency fee arrangements are in the range of 25% to 40% of recoveries, often
after expenses. The existence of a $2.4 billion trust (the largest of its kind ever, so it has
been represented) is incentive enough. It is easy to see that their efforts would be
undertaken without any expectation of reimbursement from the estate.” Indeed, the
Coalition is currently defending its handiwork as a participant in the appeals of the
confirmation order; it is not leaving that work in the hands of the reorganized Debtors and
their counsel, The Coalition’s continued participation confirms the powerful financial
incentive that led the PI Firms to take a lead role in crafting the plan in the first instance and
to encourage their clients to vote for it.
Conclusion
The Coalition has not met its burden to prove that it provided a substantial
contribution to the estate or even that Debtors’ previous decisions to pay the Fees were a
proper exercise of Debtors’ business judgment. The PI Firms believed their strategy for the
Boy Scouts of America bankruptcy case was the best for their clients and so they formed the
Coalition, The PI Firms believed that the Coalition Professionals were the best advocates of
their position and so instructed them to engage in every aspect of the case and duplicate the
scope of an official committee. This was their prerogative. The only question is whether
In their respective advertising campaigns, many of these same PI Firms were projecting a $1.5
billion trust. The financial incentive was enough for many PI Firms to mount significant advertising
campaigns.
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the Coalition’s Professionals’ Fees should be paid by anyone other than the PI Firms. The
answer is no.
For the reasons set forth above, the Motion is denied. A separate order will be
entered.
Dated: December 5, 2023 phisuubecoobcvat
aurie Selber Silverstein
United States Bankruptcy Judge
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