United States Bankruptcy Court for the Southern District of Indiana Indianapolis Division

Case 18-09108-RLM-11 Doc 140 Filed 01/09/19 EOD 01/09/19 15:28:58 Pg 1 of 11 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION In re: Chapter 11 USA GYMNASTICS,1 Case No. 18-09108-RLM-11 Debtor. OBJECTION OF THE ADDITIONAL TORT CLAIMANTS COMMITTEE OF SEXUAL ABUSE SURVIVORS TO DEBTOR’S FIRST DAY MOTION FOR AN ORDER (I) AUTHORIZING THE DEBTOR TO PAY AND HONOR CERTAIN PRE-PETITION WAGES, BENEFITS, AND OTHER COMPENSATION OBLIGATIONS; AND (II) AUTHORIZING FINANCIAL INSTITUTIONS TO HONOR AND PROCESS CHECKS AND TRANSFERS RELATED TO SUCH OBLIGATIONS AND THE SUPPLEMENT THERETO The Additional Tort Claimants Committee of Sexual Abuse Survivors (the “Sexual Abuse Survivors’ Committee”), appointed in this case under chapter 11 of Title 11 of the United States Code (as amended, the “Bankruptcy Code”), hereby submits this objection to the Debtor’s First Day Motion for an Order (I) Authorizing the Debtor to Pay and Honor Certain Pre-Petition Wages, Benefits, and Other Compensation Obligations; and (II) Authorizing Financial Institutions to Honor and Process Checks and Transfers Related to Such Obligations (the “Wage Motion”) [Doc 11] and the Supplement thereto filed on January 7, 2019 (the “Supplement”) [Doc 135].2 In further support of its objection, the Sexual Abuse Survivors’ Committee respectfully states as follows: 1 The last four digits of the Debtor’s federal tax identification number are 7871. The location of the Debtor’s principal office is 130 E. Washington Street, Suite 700, Indianapolis, Indiana 46204. 2 Capitalized terms shall have the meanings and definitions ascribed to them in the Wage Motion and the Supplement. Case 18-09108-RLM-11 Doc 140 Filed 01/09/19 EOD 01/09/19 15:28:58 Pg 2 of 11 1. USA Gymnastics (“USAG”), as debtor and debtor-in-possession, seeks to pay discretionary bonuses to employees of an organization that is responsible for the sexual abuse and assults of at least 500 children and young adults under their care. The widely-published report by the United States Olympic Committee (the “USOC”) regarding the factors underlying the sexual abuse by Larry Nassar states, “[a]nd USAG’s decision not to exert its authority over Nassar or his management of the organization’s medical care contributed to Nassar’s ability to abuse hundreds of athletes.” See Joan McPhee & James P. Dowden, Ropes & Gray, Report of the Independent Investigation: The Constellation of Factors Underlying Larry Nassar’s Abuse of Athletes (December 10, 2018), (the “Ropes & Gray Report”), p. 169.3 The Ropes & Gray Report is attached and incorporated as Exhibit A. As sexual abuse survivors told the Court in their objections to several other first day motions filed by USAG, the history of sexual abuse in the gymnastics world did not start with Larry Nassar and USAG’s negligent dereliction of duty to children and young adults likewise contributed to the sexual abuse of non-Nassar survivors. [See Docs 49, 50, 51 and 52.] 2. Given USAG’s organizational negligence in failing to protect children and young adults, the bonuses sought in the Supplement are beyond belief to those whose lives have forever been impacted by USAG’s failures. While some might contend that USAG, as an organization, has put this chapter of its past into the history books, the objections filed by the Attorney General of Indiana to a proposed consultant agreements detail USAG’s significant shortcomings in fulfilling recommendations of its own expert. [See Docs 94 and 95.] 3 Nothing contained in this objection absolves the USOC or any other party for their respective liability for the abuse perpetrated against the Sexual Abuse Survivors’ Committee’s constituency. 2 Case 18-09108-RLM-11 Doc 140 Filed 01/09/19 EOD 01/09/19 15:28:58 Pg 3 of 11 3. USAG has chosen a bankruptcy forum to address the sexual abuse claims. The bankruptcy process has given sexual abuse survivors in the form of the Sexual Abuse Survivors’ Committee an organized voice that for years was ignored and suppressed.4 The members of the Sexual Abuse Survivors’ Committee includes some of the most renowned female gymnasts, who have advocated before Congress and courts across the country, inter alia, for a gymnastics national governing body that is as interested in the welfare of its athletes as it is for medals and the income derived from gold, silver and bronze. [See Ropes & Gray Report, p. 137 (“Their biggest priority from the beginning and still today is their reputation, the medals they win and the money they make off of us.”).] This goal is consistent with the confirmation standards of a reorganization plan which requires that a plan is proposed in good faith, that the service of its officers and directors is consistent with public policy (i.e., the protection of athletes from sexual abuse), and, under certain circumstances, that the plan is fair and equitable. 11 U.S.C. § 1129(a)(3), (a)(5) and (b). It is also consistent with the creditors’ expectations that the quid pro quo for a debtor being debtor-in-possession is the debtor’s service of the interests of creditors.5 4. The members of the Sexual Abuse Survivors’ Committee have been litigating claims against USAG and others regarding their abuse for as long as two years. They have personally witnessed and been the subject of USAG’s failures to protect young gymnasts from sexual abuse. As such, they have developed a keen understanding of the failures of USAG and its employees to protect children from sexual abuse and to perpetrate a cover-up of the abuse both before and after Larry Nasser’s abusive conduct was discovered. 4 Notably, the United States Trustee has been unable to form an official committee of unsecured creditors due to the lack of interest by such constituency. [See Doc 97 (“Due to a lack of response, no unsecured creditors committee has been appointed at this time.”).] 5 As USAG is a non-profit entity, it does not have equity holders to compete with the interests of creditors. 3 Case 18-09108-RLM-11 Doc 140 Filed 01/09/19 EOD 01/09/19 15:28:58 Pg 4 of 11 OBJECTION TO PAYMENT OF PROPOSED BONUSES 5. The Court granted the Wage Motion on an interim basis on December 11, 2018, before the Sexual Abuse Survivors’ Committee was appointed. As such, the Sexual Abuse Survivors’ Committee did not have an opportunity to object to the Wage Motion on an interim basis. Although the Sexual Abuse Survivors’ Committee had some concerns with the Wage Motion, specifically the fact that it did not identify the employees, it did not intend to object to the requested relief on a final basis until the Supplement was filed, barely two days before the objection deadline. 6. Until the filing of the Supplement, the Sexual Abuse Survivors’ Committee had no notice of USAG’s intent to pay out bonuses to employees who participated and had knowledge of the cover-up of the sexual abuse. The Wage Motion makes no reference to bonuses, and only includes a vague reference to “other benefits and programs that the Debtor has historically provided in the ordinary course of operations.” [Wage Motion, ¶ 10.] Such vagueness results in a lack of adequate notice to the Sexual Abuse Survivors’ Committee and other interested parties of USAG’s intent to make the December bonus payments. 7. Further, the Wage Motion and the Supplement lack the most basic information regarding the proposed bonuses. Neither refers to any document that establishes that the proposed bonuses were anything other than discretionary. There is no testimony that any key employee’s retention is tied to the payment of the bonus. The Supplement does not provide job titles, job descriptions, job tenure, the business judgment underlying the payment of bonuses or any information that might assist the Sexual Abuse Survivors’ Committee in understanding whether any of the proposed recipients are part of the USAG culture that facilitated the negligent care of gymnasts. 4 Case 18-09108-RLM-11 Doc 140 Filed 01/09/19 EOD 01/09/19 15:28:58 Pg 5 of 11 8. An example of the prejudice of a lack of adequate information is the proposed $1,000 bonus to Amy White. On November 13, 2018, Ms. White was deposed in a number of sexual abuse cases pending in the United States District Courts in the Northern and Central Districts of California. The transcript of Ms. White’s deposition is attached and incorporated as Exhibit B. Except for some basic background information, Ms. White refused to answer any questions pleading the Fifth Amendment to the United States Constitution. Based on her pre- USAG work experience, Ms. White’s responsibilities likely included making travel arrangements for USAG personnel, making her an important witness in the abuse cases given the sexual abuse occurred all over the country. 9. On October 24, 2018, Rhonda Faehn, former Senior Vice President of the Women’s Program, was also deposed in a number of sexual abuse cases pending in the United States District Courts in the Northern and Central Districts of California. Relevant excerpts from the transcript of Ms. Faehn’s deposition are attached and incorporated as Exhibit C. At the deposition, Ms. Faehn testified that in March 2018, Ms. White told her that Steve Penny, the former Chief Executive Officer of USAG, asked her to remove records from the Karolyi Ranch and transport them to USAG’s headquarters in Indianapolis in November 2016. [Faehn Dep. 156:14 - 162:7, Oct. 24, 2018.] Mr.

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