A federal district judge recently affirmed a bankruptcy judge’s ruling that a non-creditor was entitled to actual notice of an injunction that would bar the non-creditor from suing the debtors’ insurance carriers. In re Boy Scouts of America and Delaware BSA LLC, No. 24-382, 2025 WL 893001 (D. Del. Mar. 24, 2025). The trustee had argued that the non-creditor was entitled to constructive notice, not actual notice. But both the bankruptcy and district court judges disagreed, ruling that both constitutional due process and the U.S. Bankruptcy Rules required actual notice.
The factual background is straightforward. A person who was abused while a scout sued the Boy Scouts of America (“BSA”), the Heart of America Counsel (“HOAC”), and his abuser. The victim settled his claims against the BSA and HOAC but not the abuser. In a trial against the abuser in Missouri state court, the victim was awarded $20 million in compensatory damages and $100 million in punitive damages. A judgment was entered against the abuser.
The victim and the abuser entered into an agreement that assigned to the victim rights and claims the abuser had against certain insurance companies.
In January 2021, the victim sued the insurance companies in state court in Missouri. One of the insurance companies removed the case to federal court in the Western District of Missouri. That insurer and BSA also filed suggestions of bankruptcy, informing the court of BSA’s chapter 11 filing in Delaware in 2020.
The Bankruptcy Code’s automatic stay (11 U.S.C. § 362) brought the lawsuit against the insurers to a halt. It barred the victim from seeking control over bankruptcy estate property, including insurance policies and proceeds. While the lawsuit was stayed, the parties updated the court in Missouri on the status of the bankruptcy case every 60 days.
In September 2021, the bankruptcy court approved the debtors’ disclosure statement and proposed form and manner of notice. Significantly, the victim was not served with the disclosure statement or the debtors’ proposed plan, and he did not receive notice of the confirmation hearing and the objection deadline.
The debtors’ plan preserved the debtors’ claims against certain insurance carriers and assigned the claims to a post-confirmation trust. The plan also contained an injunction (the “Injunction”) that precluded all others from proceeding against those insurers.
In September 2022, the bankruptcy court entered a confirmation order which established the post-confirmation trust and included the Injunction.
In April 2023, the victim asked the court in Missouri to lift the stay so he could resume his case against the insurers, arguing that the bankruptcy cases had ended. The insurers opposed the motion, citing the Injunction.
In July 2023, the post-confirmation trustee filed a motion in the bankruptcy court to enforce the Injunction. The motion sought to prevent the victim from proceeding against the insurers. But the bankruptcy judge denied the motion, holding that the victim had not received proper notice of the Injunction. The court held that because the victim had received just constructive notice and not actual notice, the Injunction did not apply to him. The trustee appealed the ruling to the district court in Delaware.
On appeal, the trustee asserted that the victim was not entitled to actual notice because he had settled his claims with the bankruptcy estate and was not a creditor. At most, the trustee asserted, the victim was entitled to constructive notice, such as the publication notice the debtors had disseminated. The trustee also observed that it was uncontested that the victim had actual knowledge of the debtors’ bankruptcy case.
In support of these arguments, the trustee cited Chemetron Corp. v. Jones, 72 F.3d 341 (3rd Cir. 1995), along with Bankruptcy Rules 2002(b) and 3017(d). The case and rules provide that debtors must give actual notice of a proof of claim deadline to “known creditors.” A known creditor is “one whose identity is either known or reasonably ascertainable by the debtor,” a creditor who can be identified “through reasonably diligent efforts.” 72 F.3d at 346.
The district court agreed with this conclusion, but also stated that citation to Rules 2002(b) and 3017(d) “is not the end of the analysis.” 2025 WL 893001, slip op. at 4. In fact, according to the court, “the Bankruptcy Rules set forth various requirements addressing this precise situation, that is a proposed plan that contains an ‘injunction against conduct not otherwise enjoined under the [Bankruptcy] Code’ that applies to an entity that ‘is not a creditor or equity security holders.’” Id.
Bankruptcy Rule 3016(c) provides, “If the plan provides for an injunction against conduct not otherwise enjoined by the Code, the plan and the disclosure statement must: (1) describe in specific and conspicuous language (bold, italic, or underlined text) all acts to be enjoined; and (2) identify the entities that would be subject to the injunction.” The court noted that “[s]imilarly, with respect to the notice required for a confirmation hearing with respect to a plan that proposes ‘an injunction against conduct not otherwise enjoined under the Code, the notice requirement under Rule 2002(b)(2) shall: (A) include in conspicuous language (bold, italic, or underlined text) a statement that the plan proposes an injunction; (B) describe briefly the nature of the injunction; and (C) identify the entities that would be subject to the injunction.’” 2025 WL 893001, slip op. at 4-5 (quoting Fed. R. Bankr. P. 2002(e)(3)).
In addition, “‘if under a plan, an entity that is not a creditor or equity security holder is subject to an injunction against conduct not otherwise enjoined by the Code,’ Bankruptcy Rule 3017(f) applies.” “It ‘[extends] the notice requirements of Rule 3017(d) to entities that are not creditors or interest holders but are affected by the specified type of injunction.’” 2025 WL 893001, slip op. at 5 (quoting 9 Collier on Bankruptcy ¶3017.4).
The court also observed that “the Bankruptcy Rules provide noticing requirements implemented specifically for injunctions, like the Insurance Entity Injunction, that enjoin asserts of claims against non-debtors and are intended to ensure that adequate notice is provided to those whose conduct would be enjoined.” 2025 WL 893001, slip op. at 5.
And because the debtor was entitled to actual notice, the court held that the trustee’s reliance on constructive notice failed to provide the victim with “due process.” “Here, the [d]ebtors knew the [victim] had a $120 million judgment and that he was seeking recovery on that judgment against two of the [d]ebtors’ insurers; indeed, for months, the [d]ebtors were submitting joint status reports with [the victim] in that very same litigation. Under these circumstances, neither constructive notice nor notice in the bankruptcy case generally is sufficient to satisfy due process where the plan injunction seeks to bar [the victim’s] known, asserted claims.” 2025 WL 893001, slip op. at 7.
The court concluded that it “agrees that the Trustee failed to carry the burden of showing that [the victim] was given notice of the Insurance Entity Injunction or [the] confirmation hearing as required by the Bankruptcy Rules.” Id.
