The Boy Scouts of America filed for chapter 11 amid sexual abuse lawsuits it is facing. On one level, the victims get some compensation while the organization gets legal clarity and finality. Yet on closer examination, it is troubling about using laws designed to resolve business meltdowns to address the social ills caused by nonprofit entities that are meant to do good, but have done harm, according to a Bloomberg commentary. The lawsuits against the Scouts, like the sexual abuse lawsuits against the Catholic Church and Gymnastics USA, are about our collective assignment of moral blame, and about what can be done for victims who can never be made whole by mere monetary compensation. Unlike chapter 7 bankruptcy, which essentially puts an end to a bankrupt corporation and liquidates its assets, chapter 11 is meant to save a corporation. As applied to for-profit corporations that have caused what are sometimes called mass torts — injuring many people through a common cause or pattern of behavior — chapter 11 still makes a kind of economic sense. The U.S. tort system assigns a monetary value to the injuries that people have suffered. Those who’ve been injured then effectively become creditors of the company. Because the company doesn’t have enough money to pay both the victims and its other creditors, we allow it to reorganize. As a mechanism necessary to make the system work, we impose on tort victims some of the same limits that bankruptcy imposes on other kinds of creditors. They have to file their claims by a certain date and agree to a system for determining what they will get. When it comes to nonprofits organized to provide public goods, like scouting or religion or gymnastics, this model makes much less sense, according to the commentary. These aren’t organizations whose future operations will make profits that would go to compensate victims. Read the full commentary.
*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
