Statutory Mootness Under § 363(m) and the Finality of Bankruptcy Plan Sales with Non-Consensual Third-Party Releases

Introduction

In In re Boy Scouts of America and Delaware BSA, LLC, the Third Circuit confronted a sprawling Chapter 11 plan that combined a global settlement of tens of thousands of sexual‐abuse claims with an “insurance policy buyback” under 11 U.S.C. § 363(b). The plan included non-consensual releases of claims against insurers, local councils and chartered organizations, and it created a Settlement Trust funded by hundreds of millions of dollars in cash and insurance rights. Multiple groups appealed. Some abuse claimants argued the plan’s releases ran afoul of the Supreme Court’s decision in Harrington v. Purdue Pharma (603 U.S. 204 (2024)). Insurers objected that the plan impaired their rights. Others sought narrow clarifications. Against this backdrop, the Third Circuit affirmed the plan as to the “Certain Insurers,” reversed as to the “Allianz Insurers,” and dismissed outright the appeals of two groups of abuse claimants as statutorily moot under § 363(m).

Summary of the Judgment

On May 13, 2025, a three-judge panel of the Third Circuit delivered a 36-page opinion. It held:

Dismissal of Abuse Claimants’ Appeals: The appeals of the Lujan Claimants and Dumas & Vaughn Claimants sought wholesale reversal of the Bankruptcy Court’s confirmation order. Because the order authorized a § 363(b) sale of insurance policies to good‐faith purchasers, and that sale was not stayed, the claims “affect[ed] the validity of the sale” and thus were barred by § 363(m). The court accordingly dismissed those appeals.
Claims of the Certain Insurers: A group of non-settling insurers sought plan language expressly preserving their rights and defenses under assigned policies, and requiring the Settlement Trustee to balance insurers’ interests in trust administration. The court found the plan and confirmation order already did so, and therefore affirmed.
Claims of the Allianz Insurers: Those insurers argued the plan’s “judgment‐reduction clause” extinguished their contribution and indemnity rights without consent, in violation of Purdue. The Third Circuit agreed, reversed that aspect of the confirmation order, and directed the lower court to amend the clause so that Allianz‐type excess claims would be fully satisfied by the Settlement Trust.

Analysis

Precedents Cited

11 U.S.C. § 363(b) and (m) – Permits out-of-ordinary‐course sales of estate property, and bars reversal of unstayed sales to good‐faith purchasers.
Harrington v. Purdue Pharma (603 U.S. 204, 2024) – Held non-consensual third-party releases unauthorized under § 1123(b)(6).
Pacor, Inc. v. Higgins (743 F.2d 984, 3d Cir. 1984) – Defines “related to” jurisdiction in bankruptcy.
Cinicola v. Scharffenberger (248 F.3d 110, 3d Cir. 2001) – Applied § 363(m) to a subsequent sale‐authorization order that was “inextricably intertwined” with a § 363(b) sale.
In re Energy Future Holdings (949 F.3d 806, 3d Cir. 2020) – § 363(m) barred appeal of confirmation order authorizing a previously approved asset sale.
In re Abbotts Dairies of Pa. (788 F.2d 143, 3d Cir. 1986) – Good‐faith requirement for § 363(m) protection.
In re One2One Communications (805 F.3d 428, 3d Cir. 2015) – Equitable mootness doctrine for consummated plans.

Legal Reasoning

1. Bankruptcy Jurisdiction: The court affirmed “related‐to” jurisdiction over third‐party claims because shared insurance coverage and indemnity obligations create a “specter of direct impact” on the estate. No Stern‐Marshall issue arose because the claims were resolved in the plan‐confirmation process.

2. Statutory Mootness (§ 363(m)): Section 363(m) bars reversal of an unstayed sale to good-faith purchasers if the appeal would “affect the validity of the sale.” The Lujan and D&V Claimants sought to eliminate the very releases that formed part of the deal with insurers. That “materially increase[d] the purchase price” and “plainly affect[ed] the validity” of the § 363(b) sale. The purchasers were held to be good-faith under § 363(m), and the sale was never stayed. Thus those appeals were dismissed.

3. Equitable Mootness: The court declined to rely on equitable mootness—an “exceptional” judge-made doctrine—and instead rested dismissal of the abuse claimants’ appeals on the clear statutory bar under § 363(m).

4. Insurers’ Rights Preserved: For the Certain Insurers, the plan and confirmation order already provided that nothing would modify or impair their rights under policies assigned to the Settlement Trust. The court rejected any rewriting of plan text and affirmed the good-faith proposal of the plan under 11 U.S.C. § 1129(a)(3).

5. Allianz Insurers & Purdue: The judgment-reduction clause extinguished contribution claims without consent, conflicting with Purdue’s prohibition on non-consensual third-party releases. The court reversed that clause and remanded to add a backstop requiring the Settlement Trust to pay excess claims when there is no judgment to reduce.

Impact

Finality of § 363(b) Sales: The decision underscores that once a sale under § 363(b) is authorized and unstayed, challenges that would unravel the deal are statutorily moot. Buyers of estate assets gain confidence that their purchases will not be undone on appeal.

Limits on Third-Party Releases: Even in going-concern Chapter 11 plans, debtors cannot shoe-horn non-consensual releases of non-debtor claims without regard to statutory appeal rights. Where releases formed part of the deal for a § 363(b) sale, those provisions evade appellate review under § 363(m).

Purdue Reaffirmed: Bankruptcy courts must still respect Purdue’s ban on releasing third-party claims without full satisfaction or consent. Plan drafters will need to craft judgment-reduction clauses that fully protect non-settling insurers when excess claims are at issue.

Equitable Mootness vs. Statutory Mootness: The court preferred the clear statutory framework of § 363(m) over the more flexible but controversial doctrine of equitable mootness. Future appellants will wrestle with § 363(m) first when challenging plan-embedded sales.

Complex Concepts Simplified

“Related‐to” Jurisdiction: Bankruptcy courts can decide non-bankruptcy claims if those claims might impact the value of the bankruptcy estate (e.g., shared insurance coverage).
§ 363(b) Sale: A debtor may sell property “out of the ordinary course” of business with court approval; often used to preserve value in a “melting ice cube” of a bankrupt company.
§ 363(m) Statutory Mootness: If a sale under § 363(b) is authorized, unstayed, and made to a good-faith purchaser, then an appeal that would undo that sale is barred.
Non-Consensual Third-Party Releases: Plan provisions that extinguish claims by non-debtors against released parties even when those claimants object. Purdue held such releases unlawful under § 1123(b)(6).
Good-Faith Purchaser: A buyer who pays full value, acts without fraud or collusion, and buys property without knowing of plans to unwind the sale on appeal.
Equitable Mootness: A judge-made doctrine allowing courts to dismiss appeals of consummated plans when undoing them would “fatally scramble” the reorganization or harm innocent third parties.

Conclusion

In re Boy Scouts demonstrates the power of § 363(m) to lock in unstayed sales of estate assets—even when key plan provisions, like non-consensual releases of tens of thousands of abuse claims, form part of the deal. The Third Circuit declined to unsettle the insurance policy buyback, dismissing the appeals of two groups of claimants as statutorily moot. At the same time, it reaffirmed insurers’ contractual rights under assigned policies and circumscribed the permissible scope of judgment-reduction clauses in line with Purdue. Going forward, bankruptcy practitioners must carefully craft plan-embedded sales and release provisions, always mindful that once a § 363(b) sale is authorized and unstayed, certain challenges will be off-limits to appellate scrutiny.