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Third Circuit Largely Upholds Order Confirming Boy Scouts Chapter 11 Plan

Five years after it filed for bankruptcy protection in 2020 to deal with thousands of sexual abuse claims, the Boy Scouts of America reached a significant milestone when the U.S. Court of Appeals for the Third Circuit recently rejected the most significant challenges to the organization's chapter 11 plan, which established a trust to pay the claims of abuse victims. In In re Boy Scouts of Am., 137 F.4th 126 (3d Cir. 2025), reh'g denied, Nos. 23-1664 et al. (3d Cir. June 13, 2025), the court of appeals ruled that: 

  • An appeal filed by abuse claimants of the bankruptcy court order confirming the plan, which effectuated a global settlement involving the establishment of a trust to satisfy abuse claims and a buyback of insurance policies by insurers under section 363(b) of the Bankruptcy Code to fund the trust in exchange for a nonconsensual release of all liabilities, must be dismissed as "statutorily moot" because the abuse claimants were challenging a bankruptcy sale authorized as part of confirmation of a chapter 11 plan and failed to obtain a stay pending appeal;
  • An appeal filed by certain nonsettling insurers seeking minor modifications to the plan to preserve their rights was not statutorily moot because the relief sought would not materially impact the settlement and insurance policy buyback;
  • The insurance policy buyback transaction approved under section 363(b) was not an impermissible sub rosa chapter 11 plan;
  • The nonsettling insurers' appeal was not "equitably moot" because the relief they sought did not threaten to unscramble the chapter 11 plan; and
  • The plan did not need to be modified to adequately preserve the rights of certain nonsettling insurers, but had to be changed to ensure that other nonsettling insurers' claims were paid in full because, otherwise, the plan violated the prohibition against nonconsensual third-party releases as set forth in the U.S. Supreme Court's 2024 ruling in Harrington, United States Trustee, Region 2 v. Purdue Pharma L.P.

Mootness 

"Mootness" is a doctrine that precludes a reviewing court from reaching the underlying merits of a controversy. An appeal can be either constitutionally, statutorily, or equitably moot. Constitutional mootness is derived from Article III of the U.S. Constitution, which limits the jurisdiction of federal courts to actual cases or controversies and, in furtherance of the goal of conserving judicial resources, precludes adjudication of cases that are hypothetical or merely advisory. 

An appeal can also be rendered moot (or otherwise foreclosed) by statute. For example, section 363(m) of the Bankruptcy Code provides as follows: 

The reversal or modification on appeal of an authorization [of a sale or lease of property in bankruptcy] does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal. 

11 U.S.C. § 363(m).  

Section 363(m) provides powerful protections for good-faith purchases in bankruptcy sales by limiting appellate review of the court's authorization of the transaction. See Made in Detroit, Inc. v. Official Comm. of Unsecured Creditors of Made in Detroit, Inc. (In re Made in Detroit, Inc.), 414 F.3d 576, 581 (6th Cir. 2005) ("'Section 363(m) protects the reasonable expectations of good faith third-party purchasers by preventing the overturning of a completed sale, absent a stay, and it safeguards the finality of the bankruptcy sale.'") (quoting Official Comm. of Unsecured Creditors v. Trism, Inc. (In re Trism, Inc.), 328 F.3d 1003, 1006 (8th Cir. 2003)).  

The provision serves the interests of finality and certainty in bankruptcy sale transactions and encourages bidding for estate property. See In re Sneed Shipbuilding, Inc., 916 F.3d 405, 409 (5th Cir. 2019) ("If deference were not paid to the policy of speedy and final bankruptcy sales, potential buyers would not even consider purchasing any bankrupt's property.") (internal citations omitted); In re Palmer Equip., LLC, 623 B.R. 804, 808 (Bankr. D. Utah 2020) (section 363(m)'s protection is vital to encouraging buyers to purchase the debtor's property and thus ensuring that adequate sources of financing are available).  

The federal circuit courts of appeals had disagreed over whether section 363(m) is jurisdictional, such that the failure to obtain a stay pending appeal of a sale order deprives an appellate court of jurisdiction to hear the appeal outside of the limited issue of whether the sale was made to a good-faith purchaser. Compare Su v. C Whale Corp. (In re C Whale Corp.), 2022 WL 135125, *4 (5th Cir. Jan. 13, 2022) (section 363(m) is jurisdictional and precludes an appeal of an unstayed order approving a bankruptcy sale); and Sears v. U.S. Trustee (In re AFY), 734 F.3d 810, 816 (8th Cir. 2013) (mootness under section 363(m) deprives an appellate court from hearing an appeal of an unstayed sale order) with Reynolds v. ServisFirst Bank (In re Stanford), 17 F.4th 116, 122 (11th Cir. 2021) ("Statutory mootness under 363(m) … is not jurisdictional. Though it provides a defense against appeals from bankruptcy court orders, 'even an ironclad defense, does not defeat jurisdiction.'"). The U.S. Supreme Court resolved this circuit split in MOAC Mall Holdings LLC v. Transform Holdco LLC, 598 U.S. 288 (2023), ruling that section 363(m) is not jurisdictional. 

The court-fashioned remedy of "equitable mootness" bars adjudication of an appeal when a comprehensive change of circumstances has occurred, such that it would be inequitable for a reviewing court to address the merits of the appeal. In bankruptcy cases, appellees often invoke equitable mootness as a basis for precluding appellate review of an order confirming a chapter 11 plan. 

The doctrine of equitable mootness is sometimes criticized as an abrogation of federal courts' "virtually unflagging obligation" to hear appeals within their jurisdiction. See In re One2One Commc'ns, LLC, 805 F.3d 428, 433 (3d Cir. 2015); In re Charter Commc'ns, Inc., 691 F.3d 476, 481 (2d Cir. 2012). According to this view, dismissing an appeal on equitable mootness grounds "should be the rare exception." In re Tribune Media Co., 799 F.3d 272, 288 (3d Cir. 2015); accord In re Pac. Lumber Co., 584 F.3d 229, 240 (5th Cir. 2009) (equitable mootness should be applied "with a scalpel rather than an axe"). 

Moreover, although the U.S. Supreme Court has declined on several occasions to weigh in on the propriety of the equitable mootness doctrine, it recently expressed skepticism regarding the concept of mootness generally as a bar to a federal court's consideration of the merits of any appeal. See Transform Holdco, 143 S. Ct. at 935 (in ruling that an order approving a lease assignment as a part of a bankruptcy sale transaction was not statutorily moot under section 363(m), the Court noted that "[o]ur cases disfavor these kinds of mootness arguments"). 

Substantially similar tests have been applied by most circuit courts in assessing whether an appeal of a chapter 11 confirmation order should be dismissed under equitable mootness. Those tests generally focus on whether the appellate court can fashion effective and equitable relief. See, e.g., PPUC Pa. Pub. Util. Comm'n v. Gangi, 874 F.3d 33, 37 (1st Cir. 2017) (considering whether: (i) the appellant diligently pursued all available remedies to obtain a stay of the confirmation order; (ii) the challenged chapter 11 plan had progressed "to a point well beyond any practicable appellate annulment"; and (iii) providing relief would harm innocent third parties); JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Props., Inc. (In re Transwest Resort Props., Inc.), 801 F.3d 1161, 1167–68 (9th Cir. 2015) (applying a four-factor test, including whether the court "can fashion effective and equitable relief without completely knocking the props out from under the plan and thereby creating an uncontrollable situation for the bankruptcy court"); Tribune Media, 799 F.3d at 278 (considering "(1) whether a confirmed plan has been substantially consummated; and (2) if so, whether granting the relief requested in the appeal will (a) fatally scramble the plan and/or (b) significantly harm third parties who have justifiably relied on plan confirmation"); Search Market Direct, Inc. v. Jubber (In re Paige), 584 F.3d 1327, 1339 (10th Cir. 2009) (applying a six-factor test, including the likely impact upon a successful reorganization of the debtor if the appellant's challenge is successful); In re United Producers, Inc., 526 F.3d 942, 947–48 (6th Cir. 2008) (three-factor test); TNB Fin., Inc. v. James F. Parker Interests (In re Grimland, Inc.), 243 F.3d 228, 231 (5th Cir. 2001) (considering "(1) whether the complaining party has failed to obtain a stay, (2) whether the plan (here, the liquidation) has been substantially consummated, and (3) whether the relief requested would affect the rights of parties not before the court or the success of the plan"). 

A common element of almost all of these tests is whether the chapter 11 plan has been substantially consummated. Section 1101(2) of the Bankruptcy Code provides that "substantial consummation" of a chapter 11 plan occurs when substantially all property transfers proposed by the plan have been completed, the debtor or its successor has assumed control of the business and property dealt with by the plan, and plan distributions have commenced.  

Third-Party Releases 

In Harrington, United States Trustee, Region 2 v. Purdue Pharma L.P., 603 U.S. 204 (2024), a 5–4 majority of the U.S. Supreme Court reversed and remanded a 2023 ruling by the U.S. Court of Appeals for the Second Circuit affirming the bankruptcy court confirming the chapter 11 plan of pharmaceutical giant Purdue Pharma L.P. According to the majority, no provision in the Bankruptcy Code other than section 524(g) (providing for the creation of a trust for the payment of asbestos personal injury claims) authorizes a chapter 11 plan to release the claims of nonconsenting creditors against nondebtor entities absent full satisfaction of such claims.

In so ruling, the majority reasoned that:

  • The "catchall" provision in section 1123(b)(6) of the Bankruptcy Code stating that a chapter 11 plan "may" also "include any other appropriate provision not inconsistent with the applicable provisions of this title" must be construed narrowly in light of its surrounding context and read to "embrace only objects similar in nature" to the specific examples preceding it, all of which deal with the relationship between a debtor and its creditors, rather than the "radically different" power to discharge the debts of a nondebtor without the consent of affected creditors;
  • The proponents of a chapter 11 plan cannot evade the Bankruptcy Code's general limitation that a discharge applies only to debtors who place "substantially all of their assets on the table" and its exclusion from discharge of debts based on "fraud" or those alleging "willful and malicious injury" simply "by rebranding the discharge a 'release'"; and
  • If lawmakers had intended "to reshape traditional practice so profoundly" in the Bankruptcy Code, compared to its predecessor statutes, by "extending to courts the capacious new power the plan proponents claim, one might have expected them to say so expressly somewhere" in the Bankruptcy Code itself.

The majority emphasized that nothing in its ruling should be construed to call into question consensual releases in a bankruptcy reorganization plan, and further declined to express a view on what qualifies as a consensual release, observing that those sorts of releases pose different questions and may rest on different legal grounds. Similarly, the majority declined to pass upon a plan that provides for full satisfaction of claims against a nondebtor. The majority also expressly cabined its ruling to the situation before it, noting that "we hold only that the [B]ankruptcy [C]ode does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a nondebtor without the consent of affected claimants." Id. at 206.  

Sub Rosa Chapter 11 Plans 

Unless a chapter 11 case is dismissed or converted to a chapter 7 liquidation, the ordinary culmination of the process is the bankruptcy court's confirmation of a chapter 11 plan (either a plan of reorganization or a liquidating plan). During the plan confirmation process, the Bankruptcy Code gives creditors and interest holders in the case various substantive and procedural protections, including, among other things: (i) the requirement that they be provided with adequate information to decide whether to accept or reject a plan; (ii) the right to vote on a plan that impairs their rights; and (iii) minimum standards governing the treatment of their claims or interests under a nonconsensual plan (e.g., the absolute priority rule).

However, certain events that precede (or supersede) confirmation of plan, such as a global settlement among major stakeholders, a sale of substantially all of the debtor's assets, or a comprehensive agreement in anticipation of a "structured dismissal," may be a de facto chapter 11 plan without providing all parties with the same protections as the plan confirmation process. Such "sub rosa" plans are prohibited "based on a fear that a debtor-in-possession will enter into transactions that will, in effect, "'short circuit the requirements of Chapter 11 for confirmation of a reorganization plan.'" Motorola, Inc. v. Official Comm. of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d 452, 466 (2d Cir. 2007) (citing Pension Benefit Guar. Corp. v. Braniff Airways, Inc. (In re Braniff Airways, Inc.), 700 F.2d 935, 940 (5th Cir. 1983)); In re Miami Metals I, Inc., 603 B.R. 531, 536 (Bankr. S.D.N.Y. 2019). The terms of proposed DIP financing may also be a prohibited sub rosa plan. See Resolution Tr. Corp. v. Official Unsecured Creditors Comm. (In re Def. Drug Stores, Inc.), 145 B.R. 312, 317 (B.A.P. 9th Cir. 1992) ("[A] bankruptcy court cannot, under the guise of section 364, approve financing arrangements that amount to a plan of reorganization but evade confirmation requirements"); In re Belk Props., LLC, 421 B.R. 221, 225–26 (Bankr. N.D. Miss. 2009); In re Chevy Devco, 78 B.R. 585, 589 (Bankr. C.D. Cal. 1987). 

Boy Scouts 

Facing tens of thousands of sexual abuse claims, the Boy Scouts of America, Inc., a more than century-old congressionally chartered, nonprofit youth development organization operating nationwide through tens of thousands of nondebtor entities, filed for chapter 11 protection in February 2020 in the District of Delaware, together with its affiliate Delaware BSA, LLC (together, "BSA"), in an effort to reach a global settlement of tort claims with claimants, insurers, and other interested parties. At the time of the filing, BSA had long maintained insurance policies covering various potential liabilities, including abuse claims.  

In September 2022, after mediated negotiations among the parties resulted in the framework of a global settlement, the bankruptcy court confirmed a chapter 11 plan for BSA. The plan provided for the creation of an approximately $2.5 billion trust (the "settlement trust") funded by the sale of certain assets and contributions from BSA and certain nondebtors to make payments to abuse claimants. The vast majority of the funding for the settlement trust was derived from the proceeds of BSA's sale of its liability insurance policies back to a group of its pre-petition insurers (the "settling insurers"). This "insurance policy buyback" was effectuated by means of materially identical settlement agreements between BSA and each of the settling insurers. 

Those agreements provided that each settling insurer agreed to pay a specified amount to the settlement trust in exchange for which: (i) BSA would assign and/or sell their policies to the settling insurers free and clear of all claims and interests under sections 363(b) and 363(f) of the Bankruptcy Code; and (ii) the settling insurers, "on behalf of themselves, the named insured(s) under their policies and any additional insureds (whether specifically named or categorically identified)," would receive a "complete release from all parties … of all causes of action arising out of their respective insurance policies and any liability for Abuse Claims."

If an insurer (settling or otherwise) declined to provide coverage for an abuse claim, the settlement trust could sue the insurer under the insurance policy in a collateral proceeding. 

BSA's chapter 11 plan also included a "judgment reduction provision" limiting the recoveries of nonsettling insurance companies ("nonsettling insurers") from the settlement trust under certain circumstances. Specifically, if the settlement trust obtained a judgment against a nonsettling insurer in a coverage dispute, that nonsettling insurer could obtain its own judgment imposing liability on another insurer for some (or all) of the settlement trust's judgment, after which the nonsettling insurer could offset that portion of its liability. However, a nonsettling insurer under certain circumstances would not be fully compensated by the settlement trust for defense costs that it would otherwise be entitled to under its insurance policy due to the releases and injunctions included in the plan.  

All creditor classes voted to accept BSA's plan. However, nearly 40 parties—falling into two categories consisting of: (i) two groups of nonsettling insurers (the "certain insurers" and the "Allianz insurers"); and (ii) direct abuse claimants (the "abuse claimants")—filed objections to confirmation of the plan. After a lengthy confirmation trial, the bankruptcy court approved the key elements of BSA's chapter 11 plan in July 2022, and after certain revisions were made to the plan, the court confirmed the plan in its entirety in September 2022.

Various nonsettling insurers and abuse claimants (collectively, the "appellants") appealed the confirmation order. The abuse claimants argued that the confirmation order should be reversed because the plan impermissibly included nonconsensual third-party releases. The nonsettling insurers sought narrower relief in the form of the addition of language to the plan and the confirmation order clarifying that their rights and defenses under their insurance policies were preserved—in essence, to protect rights that they would have had outside of bankruptcy to collect on their defense costs and excess liability claims (now from the settlement trust).

The district court affirmed the plan confirmation order on March 28, 2023. The appellants appealed the ruling to the Third Circuit. On April 11, 2023, the district court denied the motions of the appellants to stay the confirmation order pending resolution of the Third Circuit appeal. 

BSA's chapter 11 plan became effective on April 19, 2023. 

The Third Circuit also denied the appellants' motions for a stay of the confirmation order pending the appeal, but without prejudice to their renewed request for a stay from the district court after the Supreme Court agreed to hear Purdue on August 10, 2023. The district court again denied the appellants' request for a stay in October 2023, and the Third Circuit similarly denied their renewed request for a stay on November 2, 2023.  

The Supreme Court issued a brief administrative stay of the plan confirmation order on February 16, 2024, but ultimately refused to issue a stay in a February 22, 2024, order. After opening briefs were filed in the Third Circuit appeal, the settling insurers (later joined by BSA) moved to dismiss the appeals as equitably and statutorily moot. 

The Third Circuit's Ruling 

A three-judge panel of the Third Circuit dismissed the appeal in part, affirmed the district court's order in part, reversed it in part, and remanded the case below.  

Statutory Mootness, Sub Rosa Plan. The Third Circuit majority concluded that the appeal of the nonsettling insurers was not statutorily moot under section 363(m) because the relief they sought—addition to the plan of language preserving their rights—was "a limited form of relief sufficiently collateral to the insurance policy buyback and, therefore, their appeals avoid[ed] triggering § 363(m)." Boy Scouts, 137 F.4th at 150. Writing for the majority, U.S. Circuit Court Judge Cheryl Ann Krause explained that the proposed changes did not implicate any provision of the insurance policy buyback, and would not materially increase the purchase price paid by the settling insurers. 

However, the Third Circuit majority concluded that the appeals filed by the abuse claimants were mooted by section 363(m) because the relief they requested—reversal of the plan confirmation order—"would reverse on appeal an authorization made pursuant to § 363(b)—the very result § 363(m) prohibits." Id. at 151. In so ruling, the majority rejected the argument that the insurance policy buyback had not yet occurred because the sale was expressly conditioned in the settlement agreements on the plan confirmation order becoming a "final" (and therefore immediately appealable) order. According to Judge Krause: (i) the insurance policy buyback was completed on the plan's effective date, meaning that "the policies have been sold"; and (ii) "even if that were not the case, § 363(m) speaks in terms of unstayed authorizations under § 363(b)—it does not include an inchoate requirement that a § 363(b) sale be consummated or otherwise effectuated." Id. at *20. "By any measure," she wrote, "§ 363(m) applies here." Id. at 152.  

The Third Circuit majority also rejected the abuse claimants' argument that section 363(m) did not apply because the insurance policy buyback was not a sale under section 363(b) of the Bankruptcy Code, but rather, a sale transaction authorized as part of a chapter 11 plan. Judge Krause explained that the Third Circuit has previously held that "a confirmation order that 'authorized and directed' the consummation of a previously approved asset sale (styled as a 'merger' and conditioned upon the eventual confirmation of a reorganization plan) qualified as an authorization of a sale for purposes of § 363(m)." Id. at 153 (citing In re Energy Future Holdings Corp., 949 F.3d 806 819–20 (3d Cir. 2020); In re Fieldwood Energy LLC, 93 F.4th 817, 825 (5th Cir. 2024); In re Made in Detroit, Inc., 414 F.3d 576, 582–83 (6th Cir. 2005)). In this case, she wrote, the plan confirmation order, "which authorized the sale of BSA's insurance policies, equally serves as an 'authorization … of a sale' under § 363(m)." Id. 

In addition, Judge Krause dismissed as unfounded the abuse claimants' contention that the insurance policy buyback was not a true section 363(b) sale because the settling insurers were not third parties but, rather, insiders that stood to profit from the sale by receiving releases under the chapter 11 plan. According to the Third Circuit majority, "this contention cannot be squared with the text of § 363(m), which 'contains no exception for sales to creditors, or other parties to the bankruptcy proceedings.'" Id. at 153 n.10 (citing Krebs Chrysler-Plymouth, Inc. v. Valley Motors, Inc., 141 F.3d 490, 500 (3d Cir. 1998)). 

The Third Circuit majority similarly rejected the abuse claimants' argument that section 363(m) did not moot their appeal because the settling insurers were not "good faith purchasers," having bought back their policies even though they knew that the abuse claimants asserted rights in the policies and intended to challenge the plan on appeal. Judge Krause explained that this argument "ignores both the text of § 363(m)," which extends protection to purchasers "whether or not such entity knew of the pendency of [an] appeal" challenging the sale authorization, and the bankruptcy court's amply supported factual finding that each of the settling insurers was a "good faith purchaser for value within the meaning of section 363(m) of the Bankruptcy Code." Id. at 152. 

The Third Circuit majority was unpersuaded by the argument that the abuse claimants were not attempting to unravel the insurance policy buyback, but merely sought removal of the third-party release provisions included in the settlement agreements and confirmed as part of BSA's chapter 11 plan. Judge Krause characterized this as "a distinction without a difference." She explained that the releases were part of the consideration for the insurance policy buyback, and without them, the settling insurers would receive less than they bargained for in exchange for their contributions to the settlement trust, which "'would materially increase … the purchase price' and, thus, 'would plainly affect the validity of the sale.'" Id. at 154 (quoting Energy Future Holdings, 949 F.3d at 821). Moreover, Judge Krause emphasized, granting the relief requested by the abuse claimants "would send BSA and over 82,000 abuse claimants back to square one and would almost certainly unleash years of litigation in the wake of the vacated Plan." Id. 

Judge Krause also rejected the abuse claimants' contention that a finding of statutory mootness in this case "would effectively 'immuniz[e] the substantive terms of a plan from appellate review' anytime a plan involves a § 363(b) sale." Id. at 155 (citation omitted). According to the Third Circuit majority, "our holding does no such thing, and we take this opportunity to emphasize the narrowness of our decision in two respects: the limited scope of § 363(m) and the boundaries of so-called 'sub rosa' plans that fall beyond it." 

Judge Krause noted that section 363(m) insulates authorized bankruptcy sales from modification absent a stay pending appeal, but does not immunize "entire reorganization plans" from appellate review whenever they involve approval of section 363(b) sales. According to Judge Krause, a challenge to a bankruptcy sale that is "collateral" to, or would not otherwise "affect the validity of the sale," falls outside the scope of section 363(m), and "given the breadth of issues a reorganization plan may resolve that do not necessarily implicate the terms of a § 363(b) sale, see 11 U.S.C. § 1123(a)–(b), the vast majority of challenges, no doubt, will fall into this category." Id. (citation omitted). 

The Third Circuit majority further determined that its application of section 363(m) to the insurance policy buyback under section 363(b) does not "countenance the use of § 363(b) during the course of bankruptcy proceedings to effectuate a sub rosa plan by 'dictat[ing] the terms of a plan.'" Id. (citation omitted). The Third Circuit majority noted that "the sub rosa doctrine [is] an inherent limitation to authorizations under § 363(b)," and endorsed the approach taken by sister circuits in "applying the sub rosa doctrine where warranted," specifically in cases where section 363(b) sale proponents attempt to circumvent the stakeholder procedural protections incorporated in the Bankruptcy Code to govern the chapter 11 plan confirmation process. Id. at 156-57 and 157 n.16 (citing In re Braniff Airways, Inc., 700 F.2d 935 (5th Cir. 1983); In re Lionel Corp., 722 F.2d 1063 (2d Cir. 1983)). According to Judge Krause, "[t]his case raises none of those concerns," and "we are confident that bankruptcy and district court judges—and ultimately this Court—are eminently capable of policing the bounds of permissible § 363(b) sales and seeing cleverly disguised transactions for what they are." Id. at 156–57 (footnotes omitted). 

Equitable Mootness. The Third Circuit majority concluded that, due to the limited relief sought by the nonsettling insurers, "the success of their appeals does not threaten to fatally scramble the Plan … [and therefore] equitable mootness does not prevent us from reaching the merits of their claims." Id. at 159. In the Third Circuit, Judge Kraus explained, a court considering whether an appeal is equitably moot must inquire: (i) whether the confirmed chapter 11 plan has been substantially consummated; and (ii) if so, "whether granting the relief requested in the appeal will (a) fatally scramble the plan and/or (b) significantly harm third parties who have justifiably relied on plan confirmation." Id. at 160 (quoting In re SemCrude, L.P., 728 F.3d 314, 321 (3d Cir. 2013)). 

The Third Circuit majority ruled BSA's chapter 11 plan had been substantially consummated because: (i) the settling insurers' placement of funds into escrow as part of the insurance policy buyback qualified as a "transfer" within the meaning of section 1101(2)(A) of the Bankruptcy Code, even though the transfer was conditioned upon satisfaction of the conditions precedent to the settling insurers' funding obligations under the chapter 11 plan, including the finality of the confirmation order; (ii) BSA had been operating as a recognized charitable nonprofit since emerging from bankruptcy in April 2023 and had fully resumed operating, as required by section 1101(2)(B); and (iii) distributions to creditors had begun under the chapter 11 plan's settlement trust, as required by section 1101(2)(C). Id. at 161–63. 

In addition, the Third Circuit majority determined that, due to the "narrow, cabined relief" sought by the nonsettling insurers, BSA and the settling insurers failed to show that such relief would imperil the success of the chapter 11 plan. Judge Krause wrote that, "[w]e can hardly say that these minor changes—none of which disrupts the funding to the settlement trust or the bargain struck between BSA and the settling insurers, or requires clawing back distributions already made to abuse claimants—meets the high thresholding [sic] of 'knock[ing] the props out from under' the Plan." Id. at 163 (citations omitted). 

The Third Circuit majority was unpersuaded by the certain insurers' contention that the chapter 11 plan, the confirmation order, and the settlement trust did not adequately preserve their rights and defenses under their insurance policies. Because the express language of each of these adequately protected the certain insurers, the Third Circuit majority "decline[d] to rewrite the Plan and fasten suspenders to this already well-secured belt." For the same reason, the Third Circuit majority also rejected the certain insurers' argument that BSA did not propose its chapter 11 plan in good faith because the plan failed to include language adequately protecting their rights and defenses. Id. at 166–67. 

Finally, the Third Circuit majority agreed with the Allianz insurers' argument that the judgment reduction provision violated Purdue because the nonsettling insurers did not consent to the release of their claims and might not be fully compensated for their extinguished claims. Relying on the principle that a plaintiff is entitled to only one satisfaction for each injury, BSA argued that the nonconsensual third-party release was justified by the fact that the trust distribution procedures would "streamline and reduce defense costs by resolving claims consensually through an out-of-court process," thus significantly reducing the likelihood that the nonsettling insurers would be saddled with material defense costs. The court rejected this argument, noting that the district court did not find that the nonsettling insurers would be fully compensated for payment of defense costs, but instead merely found that they would be "adequately protected" because their defense costs would be reduced. The court accordingly reversed the district court's judgment as to the Allianz insurers' claims and remanded the case below with a direction to modify the judgment reduction provision to ensure full payment of their claims from the settlement trust. 

Concurring Opinion 

U.S. Circuit Judge Marjorie O. Rendell filed an opinion in which she concurred in the result but characterized as "fundamentally flawed" the majority's decision to treat the abuse claimants' appeal as an appeal from a section 363 sale. According to Judge Rendell, section 363(m) clearly indicates "that it does not apply to sales in reorganization plans" and "the nonconsensual third-party releases were not accomplished by way of the purported § 363 authorization, but by way of plan confirmation." Instead, she explained, the abuse claimants' appeal should have been treated as challenge to the plan confirmation order and dismissed as being equitably moot. Id. at 170–77 (concurring opinion).  

Outlook 

The Third Circuit emphasized in Boy Scouts that its decision depended on the "unique characteristics" of BSA's chapter 11 plan, the section 363(b) sale transaction involving the insurance policy buyback, and the relief sought by the appellants. It further noted in dicta that, "[i]f proposed today, the Plan would be unconfirmable in the wake of Purdue," but that the "Bankruptcy Code prevents us from disrupting the nonconsensual third-party releases in BSA's Plan at this late stage." 

Judge Rendell's criticism of the majority's conclusion that the abuse claimants' appeal was statutorily moot under section 363(m) because that provision does not apply to sales effectuated under a chapter 11 plan is not without support. As she noted, several courts have suggested that plan sales do not fall within the ambit of section 363(m). Id. at 172 and 172 n.6 (citing Miami Ctr. Ltd. P'ship v. Bank of New York, 838 F.2d 1547, 1553 (11th Cir. 1988) (holding that section 363(m) does not apply to a sale under a liquidation plan); In re Texas Extrusion Corp., 844 F.2d 1142, 1165 (5th Cir. 1988) (expressing doubt as to whether plan sales may invoke the "shield" of § 363(m) given the "definite implication that [§ 363(b), (c), and (m)] concern the trustee's authority during the administration of the estate and not at the final disposition of the property of the estate pursuant to a plan of reorganization"); In re Bardos, 2014 WL 3703923, at *9 (B.A.P. 9th Cir. July 25, 2014) (concluding that section 363(m) did not bar an appeal involving a plan sale, as plan sales are authorized under section 1123(a)(5)(B), not section 363); In re Smurfit-Stone Container Corp., 2010 WL 2403793, at *10 (Bankr. D. Del. June 11, 2010) (suggesting that section 363 does not apply to plan sales)). Judge Rendell acknowledged, however, that some courts have held to the contrary. Id. (citing In re Fieldwood Energy LLC, 93 F.4th 817, 825 (5th Cir. 2024) (applying section 363(m) to a sale authorized by a confirmation order); In re Made in Detroit, Inc., 414 F.3d 576, 582–83 (6th Cir. 2005) (same)). 

Disagreement in the circuits on this issue may be an invitation to U.S. Supreme Court review of the Third Circuit's decision. 

Equitable mootness has long been a controversial doctrine, with courts disagreeing over when it should properly be deployed to bar appeals of orders confirming chapter 11 plans. The Supreme Court has declined on several occasions to weigh in on the propriety of the equitable mootness doctrine. However, it recently expressed skepticism regarding the concept of mootness generally as a bar to a federal court's consideration of the merits of any appeal. See MOAC Mall Holdings LLC v. Transform Holdco LLC, 143 S. Ct. 927, 935 (2023) (in ruling that an order approving a lease assignment as a part of a bankruptcy sale transaction was not statutorily moot under section 363(m) of the Bankruptcy Code, the Court noted that "[o]ur cases disfavor these kinds of mootness arguments"). This too may be an issue worthy of Supreme Court review to clarify the scope of the doctrine. 

On June 13, 2025, the Third Circuit denied a motion filed by certain abuse claimants to reconsider its ruling.

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