Statutory Finality of § 363 Sales and Limits on Nonconsensual Releases in Chapter 11: In re Boy Scouts of America and Delaware BSA, LLC

Introduction

In May 2025, a divided Third Circuit issued a landmark decision in the consolidated appeals arising from the Chapter 11 cases of the Boy Scouts of America (BSA) and Delaware BSA, LLC. After years of litigation over thousands of sexual‐abuse claims, BSA’s confirmed plan created a Settlement Trust funded with nearly $2.5 billion — including proceeds from the “insurance policy buyback” under 11 U.S.C. § 363(b) — and provided for nonconsensual releases of claims against insurers, Local Councils and Chartered Organizations. Four groups of appellants challenged the plan:

Lujan Claimants and Dumas & Vaughn Claimants, abuse survivors seeking wholesale reversal of the plan on the ground that nonconsensual third-party releases violate the Bankruptcy Code (citing Harrington v. Purdue Pharma);
Certain Insurers, who sought clarifying language to preserve their policy rights;
Allianz Insurers, who asked to preserve their defense‐cost and excess‐liability claims.

Summary of the Judgment

The Third Circuit’s majority opinion reached four key conclusions:

Jurisdiction: The bankruptcy court properly exercised “related-to” jurisdiction over claims against nondebtors (insurers, councils, organizations) because of shared insurance policies and indemnity obligations.
Statutory Mootness (§ 363(m)): Appeals by the Lujan and Dumas & Vaughn Claimants were barred. Because the plan’s insurance buyback was authorized under § 363(b), the Settling Insurers purchased policies in good faith, and the sale was unstayed, § 363(m) forbids any appellate relief that would “affect the validity” of that sale authorization.
Equitable Mootness: The Certain Insurers’ and Allianz Insurers’ appeals were not barred. They sought narrow plan modifications that would not “fatally scramble” the confirmed plan nor injure third-party reliance.
Merits:
- Certain Insurers: The plan and confirmation order already preserved their policy rights and defenses; their requested changes were unnecessary.
- Allianz Insurers: The plan’s “judgment reduction” clause impermissibly extinguished their excess contribution/indemnity claims. In light of the Supreme Court’s Purdue analysis, the Third Circuit reversed and directed a backstop amendment ensuring Allianz retains full recovery rights for defense and excess‐liability claims.

Analysis

1. Precedents Cited

Harrington v. Purdue Pharma L.P. (2024): Chapter 11 plans lack statutory authority to discharge nondebtor claims without claimant consent;
11 U.S.C. § 363(m): Statutory mootness protects unstayed § 363(b) sales to good‐faith purchasers from appellate reversal;
Pacor, Inc. v. Higgins (1984): “Related-to” jurisdiction in bankruptcy when outcomes can affect the estate’s assets;
In re Energy Future Holdings (2020): § 363(m)’s “narrow” bar includes relief that would “materially increase or decrease” the purchase price;
Equitable mootness trilogy (Continental Airlines en banc 1996; Phila. Newspapers 2012; Semcrude 2013): Discretionary bar where a plan is substantially consummated and appellate relief would “fatally scramble” it or injure innocent third parties.

2. Legal Reasoning

a. Bankruptcy Court Jurisdiction: The Third Circuit agreed that the bankruptcy court could resolve nondebtor claims under its “related-to” jurisdiction because shared insurance coverage and indemnity obligations between BSA and the nondebtors meant litigation outcomes could directly impact estate assets.

b. Statutory Mootness under § 363(m):

“Authorization under subsection (b)”: The plan confirmation order authorized the sale of BSA’s and Local Councils’ insurance policies under § 363(b).
“Good faith purchaser”: Settling Insurers paid fair value and lacked collusion or fraud in arranging the buyback.
“Sale not stayed”: No appellate or bankruptcy‐court stay protected the transaction.

When all three criteria are met and relief would “affect the validity” of the sale, § 363(m) bars appellate relief. Here, reversing or modifying nonconsensual releases would necessarily alter the parties’ bargain in the buyback.

c. Equitable Mootness: Even absent a statutory bar, appellate courts may decline to disturb a substantially consummated plan when relief would unravel confirmed transactions or harm innocent third parties. Because the Certain and Allianz Insurers sought only narrow carve-outs, their appeals avoided equitable mootness.

d. Merits of Insurer Appeals:

Certain Insurers: The Confirmation Order and plan expressly preserved all policy rights and defenses “to the extent otherwise available under applicable law.” No extra “magic words” were needed.
Allianz Insurers: The plan’s “judgment reduction” mechanism extinguished their right to recover defense costs and contribution if they successfully defended against claims in court. Under Purdue’s rationale and the common‐law one-satisfaction rule, nonconsensual releases cannot bar those excess‐cost claims. The Third Circuit reversed as to Allianz and ordered an amendment guaranteeing full recovery for excess liabilities.

3. Impact on Future Chapter 11 Cases

Reinforces § 363(m) as a powerful shield for third‐party purchasers of estate assets, even when the assets are sold as part of a reorganization plan.
Confirms that nonconsensual third‐party releases cannot bar nondebtor claims unless claimants consent — Purdue applies to plan releases.
Warns bankruptcy practitioners to craft plan provisions carefully, especially when key transactions (insurance buybacks, asset sales) are interwoven with releases and injunctions.
Encourages insurers and tort creditors to negotiate explicit protections for excess‐liability or defense‐cost rights if they cannot avoid releases altogether.

Complex Concepts Simplified

11 U.S.C. § 363(m) (“statutory mootness”): If a bankruptcy court authorizes an unstayed sale of estate property under § 363(b) or (c), a successful appeal cannot unwind that sale when the buyer acted in “good faith.”
Equitable mootness: A judge-made rule permitting an appellate court to dismiss a bankruptcy appeal when a confirmed plan has been “substantially consummated” and undoing it would produce chaos or injure innocent third parties.
Nonconsensual third-party releases: Plan provisions that discharge claims against nondebtors (insurers, affiliates, etc.) without each claimant’s consent. The Supreme Court’s Purdue decision (2024) held § 1123(b)(6) does not authorize such releases.
Good-faith purchaser: Under § 363(m), a purchaser who gives fair value for estate assets, without collusion or fraud, is entitled to finality of the sale in bankruptcy.
One-satisfaction rule: Common‐law principle that a plaintiff may obtain only one full recovery for the same harm; a subsequent defendant’s indemnity or contribution claim may not yield a double recovery.

Conclusion

In In re Boy Scouts of America, the Third Circuit cemented two critical principles for Chapter 11 practice:

§ 363(m) provides a robust “final‐sale” protection for unstayed § 363(b) sales to good-faith purchasers, even when embedded in a global plan confirmation;
Nonconsensual third-party releases remain impermissible, and plans must preserve nondebtor claimants’ rights — particularly for excess defense and contribution claims, as underscored by Purdue.

The decision underscores the importance of transparent, carefully negotiated plan provisions when sales and releases intersect. Future debtors, purchasers and creditors alike will need to navigate § 363’s statutory framework and Purdue’s limits with precision to secure binding, appeal-proof resolutions.