Statutory Finality of §363(b) Sales and Limits on Third-Party Release Appeals in In re Boy Scouts of America

Introduction

The Third Circuit’s May 13, 2025 decision in In re Boy Scouts of America and Delaware BSA, LLC (Nos. 23-1664 through 23-1780) resolves a broad array of appeals arising from the confirmation of the Boy Scouts of America’s (BSA) Chapter 11 plan. After decades of sexual abuse claims depleted BSA’s resources, the organization and its insurers negotiated a global plan built around a trust funded by insurance‐policy buybacks and nondebtor contributions. On appeal, four groups of parties challenged various aspects of the confirmation order: direct abuse claimants (the Lujan and Dumas & Vaughn Claimants), competing insurers (the Certain Insurers and the Allianz Insurers), and other stakeholders. The Third Circuit’s ruling establishes a clarified application of Section 363(m) of the Bankruptcy Code—often called “statutory mootness”—to intra-plan §363(b) asset sales, confirms the scope of “equitable mootness,” and delineates the permissible contours of third-party releases in confirmed plans post-Purdue.

Summary of the Judgment

• The appeals by the Lujan and Dumas & Vaughn Claimants are dismissed as statutorily moot under 11 U.S.C. § 363(m), because the plan’s §363(b) authorization of insurance-policy buybacks was not stayed and the settling insurers paid full value in good faith.
• The appeals of the Certain Insurers are rejected on the merits. The Third Circuit holds that the plan and confirmation order already preserve all of the insurers’ prepetition rights and defenses under their assigned policies, so no plan amendments are needed.
• The appeals of the Allianz Insurers are granted in part. Applying Harrington v. Purdue Pharma, 603 U.S. 204 (2024), the Court concludes that the plan’s “judgment reduction” clause impermissibly releases excess contribution and indemnity claims. The confirmation order is reversed and remanded with instructions to add a “trust backstop” ensuring full recovery of excess defense and indemnity claims.

Analysis

1. Jurisdiction and “Related-To” Scope

The Court affirms that the bankruptcy court properly exercised related-to jurisdiction under 28 U.S.C. § 1334(b) over claims against nondebtors (local councils and chartered organizations) because:

• Shared Insurance Coverage: BSA and nondebtors were insured under common liability policies. Adverse outcomes in direct claimant suits could diminish policy proceeds available to BSA’s estate.
• Indemnity Obligations: BSA was contractually or statutorily obligated to indemnify local councils and chartered organizations, showing “conceivable effect” on BSA’s estate.

Because confirmation of the plan settled those nondebtor claims, “related-to” jurisdiction extended to approving the multi-party releases.

2. Statutory Mootness under §363(m)

Statutory mootness (or “§363(m) mootness”) bars appellate relief that would “affect the validity of a sale” authorized under §363(b) where:

• The appeal challenges a §363(b) sale authorization;
• The sale was consummated to a good-faith purchaser for value;
• The sale was not stayed pending appeal.

Here, the plan’s confirmation order authorized BSA’s sale of its insurance policies to settling insurers in exchange for $1.6 billion+ in trust funding. The settling insurers (1) paid their purchase price in full; (2) were found to be good-faith purchasers; and (3) did not obtain a stay. Hence, reversal of the nonconsensual third-party releases (consideration for the sale) would “affect the validity” of that §363(b) transaction—§363(m) requires dismissal of the Lujan and Dumas & Vaughn Claimants’ appeals.

3. Equitable Mootness

Even if statutory mootness did not apply, confirmed Chapter 11 plans that have been substantially consummated can be unreviewable on equity grounds when relief would:

1. Fatally scramble the plan—undo billions in trust funding, policy sales, nondebtor releases, and claimant distributions;
2. Injure justifiable third-party reliance—the Debtors, insurers, local councils, and 82,000+ claimants have relied on finality;

BSA’s plan has been fully effective since April 2023; millions have been paid into the trust and to claimants. Relief invalidating the releases would collapse the entire structure and upend third-party expectations. The Court declines to invoke equitable mootness for the Certain and Allianz Insurers since they seek narrow, collateral fixes that do not unravel the trust—but would apply it to the claimant appeals were statutory mootness unavailable.

4. Third-Party Releases Post-Purdue

In Harrington v. Purdue Pharma, the Supreme Court held that 11 U.S.C. § 1123(b)(6) does not authorize discharge of nondebtor claims against released parties without claimant consent. The Third Circuit applies that holding here:

• The plan’s nonconsensual releases of direct claimant claims against local councils, chartered organizations, and settling insurers were permissible only because §363(m) bars reversal of the underlying §363(b) sales—this “fortuity” distinguishes the instant case from plans proposed after Purdue would be confirmed without the releases.
• The Allianz Insurers’ “judgment reduction” clause discharges their contribution and indemnity rights absent consent—an impermissible third-party release under Purdue. The trust backstop remedy is ordered on remand.

Precedents Cited

Key authorities shaping this decision include:

• PACOR (Pacor v. Higgins, 743 F.2d 984 (3d Cir. 1984))—articulates “related-to” bankruptcy jurisdiction.
• Abbotts Dairies (In re Abbotts Dairies, 788 F.2d 143 (3d Cir. 1986))—defines good-faith purchaser for §363(m).
• Cinicola (248 F.3d 110 (3d Cir. 2001))—applies §363(m) to subsequent confirmatory orders “inextricably intertwined” with §363(b) sales.
• Energy Future Holdings (949 F.3d 806 (3d Cir. 2020))—extends §363(m) to plan confirmation orders authorizing prior §363 sales.
• Continental Airlines (91 F.3d 553 (3d Cir. 1996, en banc))—endorses equitable mootness in complex reorganizations.
• Harrington v. Purdue (603 U.S. 204 (2024))—limits §1123(b)(6) nonconsensual third-party releases.

Legal Reasoning

The Court’s reasoning unfolds in several steps:

1. Jurisdiction: Claims against nondebtors “relate to” BSA’s estate because of shared insurance and indemnity obligations.
2. Statutory Mootness: §363(m) mandates dismissal of appeals that would undermine an unstayed §363(b) sale to a good-faith purchaser—here, the insurer buybacks.
3. Equitable Mootness: Confirmed plans that are substantially consummated and supported by reliance become final absent narrow, collateral relief.
4. Plan Provisions: The Certain Insurers’ rights are already preserved under non-impairment clauses. The Allianz Insurers’ contribution claims require a backstop under Purdue.

Impact on Future Cases

This ruling has three major consequences:

• It confirms that intra-plan §363(b) sales can invoke §363(m) protections—even when sales and releases are bundled in the plan—heightening the incentive to structure sales as plan provisions.
• It clarifies that the “one-satisfaction” principle and Purdue apply to plan releases of insurer contribution and indemnity claims: trustees must provide full recovery or the release is invalid.
• It underscores the narrow scope of equitable mootness: collateral, non-disruptive appeals survive, but major plan-undermining challenges do not.

Complex Concepts Simplified

• Related-To Jurisdiction: A bankruptcy court can resolve nondebtor claims if the outcome might affect the debtor’s estate.
• Statutory Mootness (§363(m)): Once a non-stayed §363(b) sale is approved and completed to a good-faith purchaser, appeals that would reverse the sale are barred, to ensure finality.
• Equitable Mootness: A confirmed plan that is largely implemented cannot be undone on appeal if relief would collapse the plan or injure parties who relied on it.
• Nonconsensual Third-Party Releases: Chapter 11 ordinarily cannot force claimants to release nondebtor parties without their consent—courts may not discharge such claims via §1123(b)(6).

Conclusion

The Third Circuit’s decision in In re Boy Scouts of America reaffirms the strong finality policy in §363(m) while preserving a narrow avenue for appellate review of collateral plan provisions. It applies the Supreme Court’s recent Purdue mandate on nonconsensual third-party releases to insurer contribution rights, ensuring full recovery of excess claims. For reorganizing debtors, insurers, and claimants alike, this ruling underscores the critical importance of careful plan drafting, strategic use of §363 sales, and respect for claimant consent when designing global settlement trusts.