Case 20-10343-LSS Doc 1084 Filed 08/07/20 Page 1 of 20 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 Case No. 20-10343 (LSS) BOY SCOUTS OF AMERICA AND DELAWARE BSA, LLC,1 Jointly Administered Debtors. Objection Deadline: August 21, 2020 at 4:00 p.m. (ET) Hearing Date: September 9, 2020 at 10:00 a.m. (ET) MOTION OF OFFICIAL COMMITTEE OF TORT CLAIMANTS ENFORCING AUTOMATIC STAY UNDER 11 U.S.C. §§ 362(A)(3) AND 541(A) AGAINST MIDDLE TENNESSEE COUNCIL ARISING FROM TRANSFERS OF PROPERTY OF THE ESTATE The official committee of tort claimants (consisting of survivors of childhood sexual abuse) (the “Tort Claimants’ Committee”) appointed in the above-captioned cases hereby moves this Court (the “Motion”) for the entry of an order, pursuant to sections 362(a)(3) and 541(a)(1) of title 11 of the United States Code (the “Bankruptcy Code”) and Rules 4001 and 9014 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), enforcing the automatic stay against the Middle Tennessee Council, Boy Scouts of America (the “Middle Tennessee Council”) arising from transfers of property of the estate of Boy Scouts of America (the “BSA” or “Debtor”) and rendering such transfers to be void ab initio. In support of the Motion, the Tort Claimants’ Committee respectfully states as follows: 1 The debtors (together, the “Debtors”) in these chapter 11 cases, together with the last four digits of each Debtor’s federal tax identification number, are as follows: Boy Scouts of America (6300) and Delaware BSA, LLC (4311). The Debtors’ mailing address is 1325 West Walnut Hill Lane, Irving, Texas 75038. DOCS_SF:103871.8 85353/002 1 Case 20-10343-LSS Doc 1084 Filed 08/07/20 Page 2 of 20 I. JURISDICTION AND VENUE 1. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. sections 157 and 1334. This matter is a core proceeding within the meaning of 28 U.S.C. section 157(b)(2). 2. Venue of this proceeding and this Motion is proper in this District pursuant to 28 U.S.C. sections 1408 and 1409. 3. The statutory bases for the relief requested herein are sections 362(a)(3) and 541(a) of the Bankruptcy Code and Bankruptcy Rules 4001 and 9014. II. BACKGROUND 4. On February 18, 2020 (the “Petition Date”), each of the Debtors commenced a chapter 11 case by filing a voluntary petition for relief under chapter 11 of title 11 of the Bankruptcy Code. Pursuant to sections 1107(a) and 1108 of the Bankruptcy Code, the Debtors continue to operate as debtors in possession. No trustee or examiner has been appointed in these cases. On March 4, 2020, the Office of the United States Trustee (the “U.S. Trustee”) formed the Tort Claimants’ Committee consisting of nine survivors of childhood sexual abuse. III. INTRODUCTION 5. On July 1, 2020, the Middle Tennessee Council transferred substantially all of its real and personal property to an irrevocable asset protection trust (the “Transfer”) for no consideration. At the time of the Transfer, the BSA had reversionary property interests in the assets pursuant to the BSA’s and Middle Tennessee Council’s organizational charters and bylaws. The Transfer, made with the knowledge of BSA’s bankruptcy, violated the automatic DOCS_SF:103871.8 85353/002 2 Case 20-10343-LSS Doc 1084 Filed 08/07/20 Page 3 of 20 stay and is void ab initio. Despite having a self-admitted interest in the transferred properties, BSA has not taken any action to enforce the automatic stay and restore the estate’s property rights notwithstanding the Tort Claimants’ Committee demands. Therefore, The Tort Claimants’ Committee seeks an order of the Court voiding the Transfer as a violation of the automatic stay. 6. Section 541(a) of the Bankruptcy Code broadly defines property of the estate to include all legal and equitable interests of a debtor, including contingent, future interests. The automatic stay is intended to protect creditors and the estates and may not be waived by the BSA. 7. This Motion seeks redress for the willful violation of the automatic stay by the Middle Tennessee Council arising from the Transfer of property in which BSA has an interest. As property of BSA’s bankruptcy estate, the Transfer of property into an asset protection trust resulted in the diminution of the estates’ property because the Transfer put the property outside the reversionary interest BSA has in such property and outside the reach of BSA’s and the Middle Tennessee Council’s creditors. 8. Specifically, the Middle Tennessee Council took real and personal property in which the Debtor had a valuable reversionary interest, and with knowledge of the Debtor’s pending bankruptcy case, transferred its property into a self-described “asset protection trust.” The Middle Tennessee Council conveyed the real property by quitclaim deeds for no consideration.2 9. On July 10, 2020, the Tort Claimants’ Committee sent a cease and desist letter to the Middle Tennessee Council demanding that it stop or unwind the Transfer. The Middle Tennessee Council has failed to directly respond to the TCC’s letter. Instead, the BSA, 2 The Tort Claimants’ Committee has information that establishes the Middle Tennessee Council’s intent behind these transfers. The intention is irrelevant to this Motion which seeks to enforce the automatic stay. DOCS_SF:103871.8 85353/002 3 Case 20-10343-LSS Doc 1084 Filed 08/07/20 Page 4 of 20 acting on behalf of the Middle Tennessee Council, asserted that the Transfer was proper -- while simultaneously admitting that the BSA has an interest in the property. The BSA has refused to take any action in response to the Middle Tennessee Council’s actions despite numerous conversations with BSA’s counsel about transfers like these. For the reasons stated herein, the Tort Claimants’ Committee seeks an order voiding the Transfers made by the Middle Tennessee Council. IV. RELIEF REQUESTED 10. By this Motion, pursuant to sections 362(a)(3) and 541(a) of the Bankruptcy Code and Bankruptcy Rules 4001 and 9104, the Tort Claimants’ Committee seeks entry of an order voiding the Transfer of the Assets (as defined below), and granting such other and further relief as may be just, equitable and proper. A proposed form of order is annexed hereto as Exhibit A. V. STATEMENT OF FACTS A. BSA’s Preliminary Injunction 11. On the Petition Date, the BSA attributed its need for bankruptcy protection to “numerous lawsuits related to historical acts of sexual abuse in its programs.” [Docket No. 4 at p. 3]. In BSA’s words, it commenced this case “to achieve dual objectives: (a) timely and equitably compensating victims of abuse in Scouting and (b) ensuring that the BSA emerges from bankruptcy with the ability to continue its vital charitable mission.” Id. at 6-7. 12. To this end, the BSA initiated an adversary proceeding (Adv. Case No. 20-50527) (the “Adversary Proceeding”) seeking preliminary and permanent injunctive relief DOCS_SF:103871.8 85353/002 4 Case 20-10343-LSS Doc 1084 Filed 08/07/20 Page 5 of 20 against the survivors of childhood sexual abuse claims in pending lawsuits against BSA, non- debtor local councils, and others in state and federal courts around the nation (the “Pending Abuse Actions”). Accompanying the Adversary Proceeding was The BSA’s Motion for a Preliminary Injunction Pursuant to Sections 105(a) and 362 of the Bankruptcy Code (the “Preliminary Injunction Motion”). 13. After the filing of the Preliminary Injunction Motion, the Tort Claimants’ Committee, BSA, and other parties commenced negotiations regarding scope and terms of a proposed injunction over the Pending Abuse Actions. Thereafter, on March 30, 2020, the Court entered its Consent Order Pursuant to 11 U.S.C. §§ 105(a) and 362 Granting the BSA’s Motion for a Preliminary Injunction (the “Consent Order”), which generally stayed the Pending Abuse Actions and protected approximately 260 local councils (the “Local Councils”) who, like the BSA, are also subject to thousands of sexual abuse claims. 14. After a brief extension of the Consent Order, on June 9, 2020, the parties filed their Second Stipulation and Agreed Order By and Among the Boy Scouts of America, the Official Committee of Survivors of Abuse, and the Official Committee of Unsecured Creditors Modifying the Consent Order Granting the BSA’s Motion For A Preliminary Injunction Pursuant to 11 U.S.C. §§ 105(A) and 362 and Further Extending the Termination Date of the Standstill Period [Adv. Docket No. 77] (the “Second Stipulation”), which extended the preliminary injunction (the “Preliminary Injunction”) granted under the Consent Order to November 16, 2020, but also required each non-debtor Local Council seeking the benefit of the injunction to execute an “Acknowledgment and Agreement” (Exhibit 4 to the Second Stipulation) that provided, among other things, the following: 3. … [P]rovide 30 days’ notice to BSA of any corporate action pertaining to the marketing, sale, transfer, or lease of any DOCS_SF:103871.8 85353/002 5 Case 20-10343-LSS Doc 1084 Filed 08/07/20 Page 6 of 20 real property owned by Local Council and copies of any documents related thereto. 4. … [P]rovide 30 days’ notice to BSA of any sale or transfer of personal property having an appraised or book value in excess of $25,000 outside of the ordinary course of Local Council’s operations. 5. … [N]otify BSA within 10 days of executing an Acknowledgment and Agreement if it intends to take any of the actions described in paragraphs 3 or 4 above on or before July 6, 2020.