The Boy Scouts of America Filed Chapter 11 . . . in Delaware???

As you almost certainly have seen, early morning, Tuesday, February 18, the Boy Scouts of America (BSA) filed chapter 11 (Case No. 20-10343). The filing solely was motivated by the deluge of sex abuse claims filed against BSA. There currently are approximately 275 lawsuits pending in state and federal courts across the country. The case raises a host of issues--from litigation consolidation and multi-district litigation to limited liability to ensuring that survivors have a voice in bankruptcy and in their pending cases. I intend to take up those issues later a longer post. There is one issue particular to bankruptcy worthy of noting in this separate post.

Venue. How did BSA, with its national headquarters located in Irving, Texas, file in the Bankruptcy Court for the District of Delaware? As disclosed by the restructuring adviser to the BSA, on July 11, 2019, a non-profit limited liability company, called Delaware BSA, was incorporated under the laws of Delaware. The sole member of this company is BSA. Delaware BSA's principal asset is "a depository account located in Delaware."

Besides at its national headquarters, other employees are located at the BSA’s warehouse and distribution center in Charlotte, North Carolina. Still other employees work at "approximately 175 official BSA Scout Shops located throughout the United States and Puerto Rico and at the BSA’s four high adventure facilities located in Florida, Minnesota and parts of Canada, New Mexico, and West Virginia." I wonder who, if anyone, works at the Delaware BSA. And who involved in the bankruptcy case itself has any true connection to Delaware. BSA's attorneys are from Chicago. None of the creditors on its list of 20 largest creditors have addresses in Delaware.

In short -- Why Delaware? Will we see a venue transfer motion soon? Is this an(other) example of why venue reform remains necessary?

Comments

[Adam Levitin]

This is very much an example of why venue reform is needed. BSA has no business being in Delaware, and I don't think there's any way to defend what it did other than by pointing to bad behavior in previous cases that was tolerated.

The real question in my mind is what is the proper remedy. At the very least, the case should be transferred to a more appropriate venue (such as N.D. Tex.). But that really isn't sufficient. BSA's attorneys should have their fees docked to reflect the cost of other parties in litigating over venue. I don't know if that comes in the form of a sanctions motion or something else, but if courts don't take steps to crack down on this sort of flagrant, bad faith action, they are all but daring Congress to act (it's pretty awkward to argue against the procedural rights of sex abuse victims?), and Delaware will be among the most affected courts if Congress acts. Just out of self-preservation, Delaware needs to get this right.

[Adam Levitin]

fwiw, interesting to see that Pier 1, which is based in Texas, filed in EDVA. It has had a VA LLC sub for a long time, so it's not as flagrant as BSA, but there's really no good reason for Pier 1 to be in EDVA.