Statutory Mootness Under 11 U.S.C. § 363(m) Bars Post-Confirmation Attacks on Non-Consensual Third-Party Releases

Introduction

In In re Boy Scouts of America and Delaware BSA, LLC, the Third Circuit confronted appeals by sexual‐abuse claimants (the “Lujan Claimants” and “Dumas & Vaughn Claimants”) and various insurers following confirmation of a Chapter 11 plan for the Boy Scouts of America (“BSA”). BSA’s plan drew upon a massive insurance buyback—structured as a sale of BSA’s policies under 11 U.S.C. § 363(b)—in exchange for cash contributions and broad releases of abuse and coverage claims against BSA, local councils, chartered organizations, and the insurers themselves. After two years of confirmation proceedings, the insurers and claimants sharply divided: the “Certain Insurers” and “Allianz Insurers” sought narrow clarifications to preserve rights under non‐settling policies, while the abuse survivors asked this Court to vacate the entire plan as unlawful under the Supreme Court’s new precedent in Harrington v. Purdue Pharma (2024), which forbids non-consensual third-party releases in Chapter 11 plans.

Summary of the Judgment

The Third Circuit’s 8-page majority opinion affirmed in part, reversed in part, and dismissed the remainder of the appeals. It held:

Lujan & Dumas & Vaughn Claimants: Their challenge to the plan’s non-consensual releases is a direct attack on a § 363(b) “sale” of insurance policies. Under 11 U.S.C. § 363(m), an unstayed § 363(b) authorization to sell estate property to a good-faith purchaser “does not affect the validity of a sale under such authorization” on appeal. Because the plan’s insurance buyback closed on the effective date, and the Settling Insurers paid full value in exchange for broad releases, the claimants’ appeals were deemed statutorily moot and dismissed.
Certain Insurers: Their request for three modest plan modifications—(1) deleting language making their coverage rights “subject to the plan,” (2) mandating that the trustee consider their interests in administering the trust, and (3) adding a requirement that the trustee weigh other bar-date recoveries—did not affect the § 363 sale. Those appeals were heard on the merits and denied because the plan already preserved their rights and defenses under non-settling policies.
Allianz Insurers:Harrington does not directly govern coverage litigation, but the Confirmation Order’s “judgment-reduction” clause extinguished their contribution and indemnity claims against Settling Insurers without consent. The Court reversed that portion of the order—mandating that any non-settling insurer must be able to recover excess defense costs from the trust—while otherwise affirming.

Analysis

1. Precedents Cited

Section 363(m) and Statutory Mootness: Pacor v. Higgins, 743 F.2d 984 (3d Cir. 1984) (related-to jurisdiction); In re Energy Future Holdings, 949 F.3d 806, 820 (3d Cir. 2020) (reversal/modification of § 363(b) sale “does not affect the validity of that sale” unless stayed); In re Cinicola, 248 F.3d 110, 126 (3d Cir. 2001).
Equitable Mootness: In re Continental Airlines, 91 F.3d 553, 559 (3d Cir. 1996) (en banc) (five-factor test); In re Semcrude, L.P., 728 F.3d 314, 320–21 (3d Cir. 2013) (two-prong test: substantial consummation + scrambling/harms); In re Tribune Media Co., 799 F.3d 272 (3d Cir. 2015) (Ambro, J., concurring).
Non-Consensual Third-Party Releases: Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024) (Chapter 11 plans lack statutory authority under § 1123(b)(6) to discharge non-debtor claims without consent); In re SGL Carbon Corp., 200 F.3d 154 (3d Cir. 1999) (good-faith standard for plan proposals).
Sub Rosa Doctrine: In re Braniff Airways, 700 F.2d 935 (5th Cir. 1983); In re Lionel Corp., 722 F.2d 1063 (2d Cir. 1983) (pre-plan § 363 sales that effectively dictate plan content violate Chapter 11’s safeguards).

2. Legal Reasoning

Related-To Jurisdiction: The Third Circuit held that the Bankruptcy Court properly exercised “related to” jurisdiction over abuse victims’ claims against non-debtors because those claims share insurance coverage and indemnity obligations with BSA, thus having a conceivable effect on the estate. This justified inclusion of non-debtor claims in plan confirmation.

Statutory Mootness Under § 363(m): Section 363(m) bars appellate reversal or modification of an unstayed § 363(b) sale to a good-faith purchaser if it would “affect the validity of the sale.” The plan’s insurance buyback constituted such a sale. The Lujan and D&V Claimants sought to vacate the releases and thus undermine the consideration paid by the Settling Insurers. Their relief would necessarily “materially decrease the purchase price,” contravening § 363(m). The Third Circuit thus dismissed their appeals as statutorily moot.

Equitable Mootness: Because § 363(m) did not apply to the Certain and Allianz Insurers’ narrower requests, the Court considered equitable mootness. It found the plan to be “substantially consummated” (assets and policy proceeds transferred, BSA’s reorganization resumed, trust distributions commenced) and concluded that the limited plan modifications sought by those insurers would not fatally scramble the plan or harm third parties’ justified reliance. Accordingly, their appeals survived equitable-mootness dismissal.

Non-Consensual Releases & Harrington:Harrington to challenge the “judgment‐reduction” provision, which extinguished their contribution and indemnification claims against Settling Insurers and left them uncompensated for excess defense costs. Applying the one-satisfaction rule, the Third Circuit held that unless a non-settling insurer receives full satisfaction for its excess claims—something the lower courts did not find—the release was unlawful. The Court reversed that clause and remanded for entry of a backstop order preserving excess recovery rights.

3. Impact

This decision underscores the interplay between Supreme Court precedent (Purdue) and statutory protections in the Bankruptcy Code. It demonstrates that:

An unstayed § 363(b) sale embedded in a confirmed plan can preclude appellate review of non-consensual third-party releases on statutory mootness grounds—even if such releases would be unlawful if proposed today.
Narrow, collateral challenges that do not affect sale validity (such as clarifying coverage-preservation clauses) may proceed despite statutory mootness.
Equitable mootness remains a viable, judge-made doctrine to dismiss appeals when plan consummation and reliance make relief inequitable, but it will not bar challenges to smaller, collateral provisions.
Plan drafters must carefully consider timing: releases that would fail Purdue may survive if effectuated pre-Harrington and closed by bankruptcy-code sale mechanics.

Complex Concepts Simplified

Statutory Mootness (11 U.S.C. § 363(m)): Once a debtor sells estate property under § 363(b) to a “good-faith” buyer without a court-ordered stay, an appellate court cannot undo that sale if doing so would rollback what the buyer paid.
Equitable Mootness: A judge-made rule that stops appeals once a reorganization plan is substantially implemented and undoing it would disrupt infected third parties or undermine the plan’s structure.
Non-Consensual Third-Party Releases: Plan provisions that discharge claims against parties other than the debtor—even though those parties never consented—are generally forbidden under Harrington v. Purdue unless they receive full satisfaction of their claims or the appeal is equitably moot.
Sub Rosa Plan Doctrine: Bankruptcy courts may invalidate sales under § 363 that, in substance, dictate the terms of a reorganization plan before Chapter 11’s confirmation process can run its course.

Conclusion

In re Boy Scouts of America illustrates the careful balance between finality in bankruptcy sales and the Code’s prohibition on non-consensual releases. By invoking § 363(m), the Third Circuit protected the insurance buyback from direct attack by abuse survivors—an outcome shaped by the plan’s timing and structure. Yet the Court also reaffirmed that narrow, collateral plan edits can survive statutory mootness and that releases violating Harrington must yield when they deny non-settling parties full satisfaction. Going forward, debtors and litigants must navigate the interlocking rules on sale approvals, plan‐confirmation safeguards, and appellate-mootness barriers with precision.