Section 363(m) Finality and Non-Consensual Third-Party Releases: Boy Scouts Chapter 11 Plan Decision

Introduction

In In re Boy Scouts of America and Delaware BSA, LLC, the Third Circuit addressed appeals by two groups of childhood sexual-abuse claimants who objected to the confirmed Chapter 11 plan of the Boy Scouts of America (BSA). Facing tens of thousands of claims, BSA and dozens of insurers struck a “policy buyback” for roughly $1.6 billion under 11 U.S.C. § 363(b). In exchange, the plan included non-consensual releases of insurer, council, and chartered-organization liability. After the Bankruptcy and District Courts approved the plan and it went effective in April 2023, four appellant coalitions pressed distinct appeals:

• Lujan Claimants and Dumas & Vaughn Claimants: 140 survivors seeking reversal of all plan releases;
• Certain Insurers: non-settling carriers asking for clarifying language to preserve their policy rights;
• Allianz Insurers: carriers challenging a “judgment reduction” provision that they say extinguishes certain excess-defense and contribution claims against settling insurers.

The Third Circuit majority affirmed in part, dismissed in part, and reversed in part, giving rise to important new guidance on when a confirmed sale of estate assets under § 363(b) becomes immune from appellate attack under § 363(m), and how far that finality extends into the content of a Chapter 11 plan.

Summary of the Judgment

The court resolved jurisdictional, mootness, and merits issues in four steps:

1. Bankruptcy Court Jurisdiction – The court held that the Bankruptcy Court properly exercised “related-to” jurisdiction over abuse claims against non-debtor local councils and chartered organizations based on shared insurance coverage and indemnification obligations.
2. Statutory Mootness under § 363(m) – The appeals by the Lujan and Dumas & Vaughn Claimants were statuarily moot. Because the confirmed plan expressly authorized the sale of BSA’s and local councils’ insurance policies under § 363(b), and the settling insurers paid in good faith without a stay, § 363(m) bars any appellate relief that would “affect the validity of the sale.”
3. Equitable Mootness – The court declined to dismiss the narrower appeals of the Certain Insurers and Allianz Insurers as equitably moot, finding that the limited relief they sought would not “fatally scramble” the plan or undermine third parties’ reliance.
4. Merits for Remaining Appellants – The Certain Insurers’ bid for additional plan language was denied because the plan and confirmation order already preserved their policy rights and defenses. The Allianz Insurers prevailed on appeal: the “judgment reduction” clause was swept aside under Harrington v. Purdue Pharma (603 U.S. 204 (2024)), as it non-consensually discharged claims they would otherwise hold for defense costs and contribution against settling insurers.

Analysis

1. Precedents Cited

• Pacor v. Higgins, 743 F.2d 984 (3d Cir. 1984) – Defines “related-to” jurisdiction by the “conceivable effect” test.
• Cinicola v. Scharffenberger, 248 F.3d 110 (3d Cir. 2001) – § 363(m) applies to sales intertwined with later plan confirmation.
• In re Energy Future Holdings, 949 F.3d 806 (3d Cir. 2020) – Clarifies § 363(m) bar on appeals that would alter the sale price or essential deal terms.
• Harrington v. Purdue Pharma, 603 U.S. 204 (2024) – Non-consensual third-party releases in Chapter 11 plans are unauthorized under § 1123(b)(6).

2. Legal Reasoning

Related-to Jurisdiction: Shared insurance policies and indemnification covenants between BSA, local councils, and chartered organizations meant that adverse judgments against councils would reduce BSA’s coverage or trigger indemnity. Thus, abuse-claim adjudications against non-debtors were “related to” BSA’s estate.

Statutory Mootness – § 363(m): To invoke § 363(m), three conditions must be met:

1. The appeal is from authorization of a § 363(b) sale;
2. The purchaser (here, the settling insurers) bought in good faith;
3. The sale was not stayed pending appeal.

With all three satisfied, any relief that “affects the validity of the sale” is barred on appeal. The Lujan and D&V Claimants asked for plan revisions that would undermine the settlement and reduce what the insurers agreed to pay. That “materially increas[ed] or decreas[ed] the purchase price” and was thus off-limits under the statute.

Equitable Mootness: Even absent § 363(m), the court weighs two questions for a plan appeal after substantial consummation:

1. Has the plan been substantially consummated (assets transferred, debtor or successor operating the reorganized business, distributions begun)?
2. Would the requested relief fatally scramble the plan or unfairly harm third-party reliance?

The Certain and Allianz Insurers passed this test because their requested adjustments were narrow clarifications and would not collapse the global resolution.

Non-Consensual Third-Party Releases: Although plan injunctions of non-debtor claims survive § 363(m)’s bar, they must still comply with § 1123(b)(6). Purdue held that releasing non-debtor liability without claimants’ consent is “impermissible.” The Allianz Insurers further showed that the plan’s “judgment reduction” apparatus actually eliminated certain excess and defense-cost claims—another form of non-consensual discharge. Under Purdue, the court reversed that provision.

3. Impact on Future Chapter 11 Cases

• Confirms that § 363(m) protects confirmed sales from late-stage challenges—as long as purchase was in good faith, unstayed, and relief would alter the consideration.
• Warns debtors and insurers that non-consensual third-party releases will not survive a plan confirmation (per Purdue) unless claimants consent or the plan fully satisfies the claims.
• Reinforces that Chapter 11 plans remain subject to rigorous § 1129 confirmation requirements—even when they include § 363 sales within the plan document.
• Emphasizes the narrow scope of equitable mootness and the necessity to show substantial consummation plus real harm from unwinding the plan.

Complex Concepts Simplified

• § 363(b) Sale: A bankruptcy-court-approved sale of estate assets outside the ordinary course of business.
• § 363(m) Statutory Mootness: If a § 363 sale closed in good faith and without a stay, appeals that would undo or alter that sale are automatically barred.
• Equitable Mootness: Even if statutory mootness does not apply, courts may refuse to disturb a plan that has been fully implemented and on which others have relied.
• Non-Consensual Third-Party Release: A Chapter 11 plan provision that extinguishes claims against non-debtors—permitted only in narrow circumstances.
• Purdue Principle: Section 1123(b)(6) does not authorize releasing non-debtor claims over the objection of those claimants.

Conclusion

The Third Circuit’s ruling in Boy Scouts cements two critical chapter-11 law principles:

• Sales of estate property confirmed under § 363(b) become unassailable on appeal once the buyer pays in good faith and no stay is obtained—per § 363(m). That protection extends even when the sale is tucked into the plan itself.
• Non-consensual third-party releases, however, remain subject to § 1123(b)(6) and the Supreme Court’s Purdue decision. A plan may not sweep away outsiders’ claims without their agreement or full satisfaction.

For practitioners, this decision underlines the importance of careful plan drafting, early stay applications if a § 363 sale is contested, and securing claimant or insurer consent for third-party releases. It also reaffirms that plan content cannot outrun statutory limits, and sale finality under § 363(m) has defined boundaries.