Section 363(m) Bars Late-Stage Challenges to Chapter 11 Asset Sales: The Boy Scouts Precedent

Introduction

In a landmark decision issued May 13, 2025, the United States Court of Appeals for the Third Circuit confronted appeals arising from the Boy Scouts of America’s (“BSA”) Chapter 11 reorganization plan. At its core, the dispute turned on the sale of BSA’s pre-petition insurance policies back to certain insurers (the “Settling Insurers”) under 11 U.S.C. § 363(b) (the “Insurance Policy Buyback”), and on plaintiffs’ attempts to overturn nonconsensual releases granted to non-debtor entities under that plan. The Third Circuit held that § 363(m)’s “statutory mootness” rule precludes reversal or modification of an unstayed sale authorization once the sale has closed and a good-faith purchaser has paid, even if the appellant challenges a plan provision interwoven with the sale. Appeals by the Lujan and Dumas & Vaughn claimants were dismissed, while more limited insurer appeals were addressed on the merits.

Summary of the Judgment

The Third Circuit’s majority opinion resolved multiple appeals from the Bankruptcy and District Courts’ confirmation of BSA’s Chapter 11 plan. Two groups of abuse survivors—the Lujan claimants and the Dumas & Vaughn claimants—sought wholesale reversal of the confirmation order on the ground that the plan’s nonconsensual third-party releases violate § 1123(b)(6) in light of the Supreme Court’s ruling in Harrington v. Purdue Pharma. The Third Circuit held that such relief would “affect the validity” of a § 363(b) sale—namely, the Insurance Policy Buyback—and was therefore barred by § 363(m), which protects good-faith purchasers of estate assets from appellate unwinding of unstayed sale orders. Two narrower insurer groups (Certain Insurers and Allianz Insurers) sought discrete modifications to ensure preservation of their contractual defenses and the right to recover defense costs in excess layers. The court found those requests “collateral” to the sale and addressed them on the merits: it denied relief for the Certain Insurers (finding the plan already preserves their rights) and granted relief to the Allianz Insurers (modifying the judgment-reduction provision so they may recoup excess defense costs).

Analysis

1. Precedents Cited

• Section 363(m): “Statutory mootness” protecting sale orders from vacation on appeal when (a) the sale was authorized under § 363(b)/(c), (b) consummated by a good-faith purchaser, and (c) unstayed during appeal. (Krebs Chrysler-Plymouth v. Valley Motors, 141 F.3d 490 (3d Cir. 1998); In re Energy Future Holdings, 949 F.3d 806 (3d Cir. 2020))
• Pacor doctrine: “Related to” bankruptcy jurisdiction over non-debtor claims that conceivably affect the debtor’s estate. (Pacor v. Higgins, 743 F.2d 984 (3d Cir. 1984))
• Equitable mootness: Judicially-crafted bar to appeals when plan substantially consummated and relief would “fatally scramble” the plan or harm justifiably-reliant third parties. (In re Continental Airlines, 91 F.3d 553 (3d Cir. 1996) (en banc); In re Tribune Media, 799 F.3d 272 (3d Cir. 2015))
• Braniff & Lionel: The “sub rosa plan” doctrine limiting § 363(b) use when a sale effectively dictates plan terms. (In re Braniff Airways, 700 F.2d 935 (5th Cir. 1983); In re Lionel Corp., 722 F.2d 1063 (2d Cir. 1983))
• Harrington v. Purdue Pharma: Supreme Court’s 2024 ruling that § 1123(b)(6) does not authorize nonconsensual releases of third-party claims in Chapter 11 plans. (603 U.S. 204 (2024))

2. Legal Reasoning

Related-to jurisdiction: The court confirmed Bankruptcy Court jurisdiction over survivors’ claims against non-debtor local councils, chartered organizations, and insurers via § 1334's “related to” standard—because shared insurance coverage and indemnity obligations create a conceivable effect on the debtor’s estate. (In re Combustion Eng’g, 391 F.3d 190 (3d Cir. 2004))

Statutory mootness under § 363(m): Where a plan confirmation order authorizes a sale under § 363(b), that sale, once closed to a good-faith purchaser and unstayed on appeal, cannot be reversed or modified—even if the appellant challenges the plan provisions that formed part of the sale’s consideration. The Lujan and Dumas & Vaughn claimants’ request to vacate nonconsensual releases would “affect the validity” of the Insurance Policy Buyback, and so falls within § 363(m)’s bar. (Energy Future Holdings, 949 F.3d 806 (3d Cir. 2020))

Equitable mootness (not needed for insurer appeals): Because Certain and Allianz insurer appeals proposed only ancillary changes (“collateral issues”), addressing them would not “scramble” the plan or harm those who relied on plan confirmation. But the Lujan and D&V appeals would require unwinding core transactions and uprooting post-effective-date distributions, so they are also equitably moot.

Merits for Narrow Insurer Appeals:

• Certain Insurers: The plan and confirmation order already preserve all their defenses and contractual rights under assigned policies, so no further carve-outs were warranted.
• Allianz Insurers: The confirmation order’s “judgment-reduction” clause extinguished their contribution/indemnity rights for excess defense costs. Under Purdue’s “full satisfaction” principle, they must be allowed a back-stop: where no offsetting judgment against a Settling Insurer exists, the Settlement Trust must pay their excess claim. Relief granted on remand.

3. Impact

This decision underscores the power of § 363(m) to insulate sales of estate assets from appellate unwinding once closed to good-faith purchasers. Debtors and purchasers courting asset sales under § 363(b) will find greater certainty—so long as they avoid stays and the sales close. But it also highlights potential unfairness to nonconsenting claimants whose rights form sale consideration (especially where Supreme Court precedent disallows nonconsensual third-party releases). The ruling reinforces the need for Chapter 11 practitioners to carefully frame releases, opt-out rights, and related sale provisions—particularly in light of the Supreme Court’s subsequent Purdue decision. Finally, the court’s distinction between § 363(m)’s statutory bar and equitable mootness preserves judicial flexibility to address collateral challenges to sales.

Complex Concepts Simplified

• Statutory mootness (§ 363(m)): Once a bankruptcy court authorizes a sale of estate property under § 363(b) or (c), and that sale closes to a purchaser who paid fair value in good faith, any appellate reversal would not “undo” the sale—unless the sale order was stayed during appeal.
• Equitable mootness: A judge-made doctrine allowing dismissal of appeals where the plan is fully in motion (assets sold, distributions begun) and undoing confirmation would create chaos or harm parties who relied on finality.
• Nonconsensual third-party releases: Plan provisions that discharge claims against non-debtor entities without each claimant’s consent. The Supreme Court in Purdue ruled such releases impermissible under § 1123(b)(6).
• Insurance Policy Buyback: Under § 363(b), BSA sold insurance policies and assigned related rights to certain insurers in exchange for cash contributions to a post-confirmation trust funding survivor claims. The sale’s terms included broad releases of abuse claims against insureds.
• Judgment-reduction clause: A plan mechanism letting insurers offset their own contribution judgments against the survivors’ trust by amounts attributable to other insurers. Without an offset, excess defense costs would be lost—corrected here for Allianz insurers under Purdue.

Conclusion

The Third Circuit’s decision in the Boy Scouts bankruptcy appeals marks a pivotal application of § 363(m) to Chapter 11 plans incorporating § 363(b) sales—and a clear message that late-stage attacks on unstayed sales to good-faith purchasers will be statutorily mooted. It also delineates the limits of equitable mootness for narrowly carved-out insurer appeals. By dismissing broad appeals of nonconsensual releases and addressing discrete insurer challenges, the court balanced the Code’s twin policies of finality in asset sales and protection of underlying contractual rights. Practitioners must heed this ruling when structuring plan sales, releases, and appeal-stay strategies to ensure enforceable and reviewable Chapter 11 outcomes.