Statutory Finality of Non-Stayed §363(b) Sales: Boy Scouts Appellate Commentary

Introduction

In May 2025 the Third Circuit issued a precedential opinion in the consolidated appeals arising from the Chapter 11 plan confirmation of Boy Scouts of America and Delaware BSA, LLC (collectively “BSA”). Facing tens of thousands of historic sexual-abuse claims, BSA and its affiliates negotiated a global reorganization plan that included the creation of a Settlement Trust funded by asset sales and insurance “buy-backs,” plus non-consensual third-party releases. Four groups of appellants challenged various aspects of confirmation:

• Lujan Claimants and Dumas & Vaughn Claimants: survivors seeking to unwind the plan for including non-consensual releases.
• Certain Insurers: non-settling carriers asserting that the plan must preserve their policy rights and defenses.
• Allianz Insurers: non-settling carriers objecting that the plan’s “judgment reduction” clause discharged their contribution and indemnity claims.

The Third Circuit affirmed in part, reversed in part, and dismissed the survivors’ appeals on statutory-mootness grounds under § 363(m) of the Bankruptcy Code. It held that the Certain Insurers’ relief requests were collateral to the § 363(b) sales and thus reviewable, but that the survivors’ requests would undo the sale consideration and therefore were barred. The Court also reversed as to the Allianz Insurers, concluding that their contribution claims had been improperly released without consent under the Supreme Court’s intervening decision in Harrington v. Purdue Pharma L.P. (2024).

Summary of the Judgment

The Third Circuit’s opinion resolves three principal issues:

1. Jurisdiction: The Bankruptcy Court properly exercised “related-to” jurisdiction over third-party claims against Local Councils and Chartered Organizations based on shared insurance coverage and indemnity obligations.
2. Statutory Mootness (§ 363(m)): Appeals of unstayed § 363(b) sale authorizations to good-faith purchasers are moot to the extent that the relief sought would affect the validity of the sale. The survivors’ requests to unwind the insurance buy-backs failed that test and were dismissed.
3. Equitable Mootness: The Certain Insurers’ and Allianz Insurers’ appeals were not statutorily moot, and the limited relief they sought would not fatally scramble the plan or upend third-party reliance, so review on the merits followed.

On the merits, the Court held that:

• The Plan and Confirmation Order already preserved the Certain Insurers’ rights and defenses under their assigned policies, so no Plan amendment was required.
• The Allianz Insurers’ contribution and indemnity claims had been impermissibly released and discharged by the plan’s “judgment reduction” mechanism. Under Purdue, the Third Circuit modified the Confirmation Order to assure full recovery of excess claims from the Settlement Trust.

Analysis

1. Precedents Cited

• Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984): “Related-to” jurisdiction test—“conceivable effect” on the estate.
• In re Combustion Eng’g, 391 F.3d 190 (3d Cir. 2004): § 363(b) good-faith purchaser rule; third-party releases must preserve non-debtor rights.
• Cinicola v. Scharffenberger, 248 F.3d 110 (3d Cir. 2001): § 363(m) bar applies to sales later ratified by plan confirmation.
• In re Energy Future Holdings, 949 F.3d 806 (3d Cir. 2020): statutory mootness elements—(1) § 363 authorization, (2) good-faith purchaser, (3) no stay.
• Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024): limits on non-consensual third-party releases under § 1123(b)(6).

2. Legal Reasoning

Related-to Jurisdiction: The Court concluded that BSA’s shared insurance programs with Local Councils and automatic indemnity obligations created a “specter of direct impact” on the estate, satisfying Pacor’s “conceivable effect” test for § 157(c) jurisdiction.

Statutory Mootness (§ 363(m)): Section 363(m) provides that once a sale or lease of estate property under § 363(b) or (c) to a good-faith purchaser has closed and was not stayed, neither the authorization nor the sale may be “reversed or modified on appeal.” The survivors sought to undo the back-to-insurers policy sales in order to rescind the third-party releases. That relief “would affect the validity of the sale” because the releases themselves formed part of the insurers’ consideration. Accordingly, § 363(m) barred appellate relief to invalidate the releases.

Equitable Mootness: To invoke equitable mootness, a Court must find that the plan has been “substantially consummated” (transfer of substantially all funded assets, assumption of operations, and commencement of distributions), and that granting relief would fatally scramble the plan or harm innocent third parties. Because the Insurance Policy Buybacks closed, the Settlement Trust funded and distributing billions, and reversal of the releases would collapse the global resolution, the Court recognized that the survivors’ requested relief also would be barred by equitable considerations.

Merits for Insurers: The Certain Insurers’ narrowly tailored requests—to clarify preservation of their policy rights and defenses—were collateral to the § 363(b) sales and would not unwind the transactions, so review on the merits was permissible. The Court concluded that the Plan’s existing language already protected their rights. By contrast, the Allianz Insurers correctly identified a clash between the plan’s “judgment reduction” clause and Purdue’s prohibition on non-consensual discharges of third-party claims. The Third Circuit therefore modified the Confirmation Order to ensure full recovery of excess defense and indemnity obligations from the Settlement Trust.

3. Impact on Future Cases

• Reaffirms that § 363(m) provides a powerful shield to good-faith purchasers of estate assets, barring appellate unwinds of unstayed sale authorizations.
• Emphasizes that plan provisions issued under § 1123 must preserve non-debtor rights absent consent—particularly after Purdue—or risk post-confirmation modification.
• Illustrates the careful balancing between statutory and equitable mootness doctrines in high-stakes, multi-billion-dollar reorganizations.
• Cautions plan drafters to structure insurance buy-backs, releases, and injunctions in ways that comply with emerging Supreme Court guidance and do not hinge solely on § 363 authorization.

Complex Concepts Simplified

• Section 363(b) Sale: A bankruptcy court–approved sale of a debtor’s assets outside the ordinary course of business.
• Good-Faith Purchaser: Under § 363(m), a buyer who pays value, acts without collusion or fraud, and often invests on the strength of an unstayed sale order.
• Statutory Mootness (§ 363(m)): If a sale order is not stayed and the sale to a good-faith purchaser closes, an appellant may not “reverse or modify” that sale on appeal.
• Equitable Mootness: Even absent § 363(m), courts may decline relief if a plan is substantially consummated and unwinding it would collapse the reorganization or injure innocent third parties.
• Non-Consensual Third-Party Releases: Plan provisions that discharge claims against non-debtors without their consent—permissible only in narrow circumstances.
• Judgment Reduction Clause: A mechanism under which non-settling parties may offset a plan trust’s recovery by their liability allocations—potentially discharging excess claims.

Conclusion

The Third Circuit’s decision underscores the primacy of statutory finality in § 363(b) sales: once they close to good-faith purchasers without a stay, courts will not unwind them on appeal. Survivors’ efforts to invalidate non-consensual releases embedded in the insurance buy-backs were blocked by § 363(m) (and by equitable mootness), leaving their objections beyond the Court’s remedial reach. Insurers, however, retain a path to carve-out plan provisions that impinge on their policy rights—particularly after Purdue—and courts will intervene to preserve those rights when plan language fails to do so. Going forward, plan negotiators, debtors and insurers alike must carefully structure confirmation and sale documents to align with both statutory and equitable constraints and to avoid unreviewable “sub rosa” end-runs around Chapter 11’s safeguards.