On May 13, 2025, the Third Circuit issued a high-stakes opinion in In re Boy Scouts of America, affirming the confirmation of a Chapter 11 plan that includes nonconsensual, nondebtor third-party releases—despite the U.S. Supreme Court’s landmark ruling in Purdue Pharma, which now prohibits such provisions. The twist? The Court didn’t rule on the substantive legality of the releases under Purdue. Instead, it sidestepped the issue entirely by invoking statutory mootness under section 363(m) of the Bankruptcy Code.
If you’re wondering whether this opens a procedural loophole around Purdue, you’re not alone.
What Happened?
The Boy Scouts’ plan, confirmed in 2022, included a $2.5 billion trust to resolve over 82,000 sexual abuse claims. A key piece was a $1.6 billion insurance policy buyback—funded by insurers in exchange for broad third-party releases. The plan received overwhelming creditor support and was affirmed by the district court in 2023.
Then came Purdue Pharma. In June 2024, the Supreme Court held that nonconsensual, nondebtor releases are not authorized by the Bankruptcy Code. Shortly after, the Third Circuit heard argument in the Boy Scouts appeal.
Despite acknowledging that the Boy Scouts plan would now be “unconfirmable” under Purdue, the Third Circuit upheld confirmation anyway, on the grounds that unwinding the plan would disrupt a sale protected by section 363(m).
The Court’s Reasoning: A Procedural Shield
Writing for the majority, Judge Cheryl Ann Krause distinguished between appeals that are collateral to a sale and those that strike at its core. The tort claimants, she reasoned, were effectively seeking to undo the entire plan, including the insurance buyback. That, in the Court’s view, was a direct challenge to the validity of a sale to good-faith purchasers—something section 363(m) explicitly shields from appellate reversal if no stay was in place.
So while the Supreme Court has clearly spoken on the substantive invalidity of nonconsensual third-party releases, the procedural protections of section 363(m) kept this plan intact.
A Notable Concurrence—and a Judicial Divide
Judge Marjorie Rendell concurred in the result but took a different route. She rejected the application of section 363(m) and instead relied on equitable mootness, arguing the plan had progressed too far to be unwound. This highlights a critical divide on the panel, and in bankruptcy jurisprudence more broadly: whether statutory or equitable mootness should govern when a plan is challenged after substantial consummation.
Why It Matters
This ruling raises pressing questions for future mass tort bankruptcies:
- Can debtors now insulate third-party releases from appellate review by embedding them in a section 363(b) sale?
- Will section 363(m) be read narrowly going forward—or become a strategic escape hatch from Supreme Court precedent?
- Could equitable mootness still survive a direct challenge in the wake of increasing scrutiny?
Judge Krause addressed the concern directly, stating that section 363(m) doesn’t immunize an entire plan from appellate review—just those challenges that would undo a good-faith sale. Yet, in this case, the releases and the sale were so intertwined that reviewing one meant unraveling both.
The Bottom Line
In Boy Scouts, the Third Circuit may have set forth a roadmap for future debtors to implement to work around Purdue. As bankruptcy courts grapple with large-scale mass tort cases, and as parties structure deals post-Purdue, the use of section 363(m) as a procedural shield is likely to face further challenges—and maybe, eventually, a Supreme Court ruling of its own.
Until then, Boy Scouts is a powerful reminder: in bankruptcy, how a deal is structured may be just as important as what it contains. Moreover, it offers an important reminder that even after a clear doctrinal ruling from the Supreme Court, procedural defenses may still control outcomes. Until the High Court addresses how section 363(m) interacts with confirmation standards, the door remains open—if only slightly—for plans that rely on nonconsensual third-party releases to survive, not on the merits, but on timing and structure.
