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Is a McDonald's franchise considered a separate legal entity from the corporation?

Maybe it's time for someone with legal expertise to help us understand the relationship between councils and the BSA. Just a hunch, but since the courts haven't thrown out the idea that councils are part of the BSA, it's not simple.

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Posted (edited)
36 minutes ago, MattR said:

Is a McDonald's franchise considered a separate legal entity from the corporation?

Maybe it's time for someone with legal expertise to help us understand the relationship between councils and the BSA. Just a hunch, but since the courts haven't thrown out the idea that councils are part of the BSA, it's not simple.

Here's the thing, even those with legal expertise disagree.

It comes down to how much control did National hold over the Councils and the adult leaders.

At this point  National is prepared to concede and in fact has conceded in its bankruptcy filings it had SOME control (the fact they kept the perversion files with data from the councils; the fact hat councils only exist at National's say so, that council implement National's policies, etc.) Rather than spending the better part of the next decade hashing out how much (15% liable? 25%?) they are going for this global settlement and inviting councils to pitch in.

The alternative is 3-5 years of lawsuit and appeal and this goes on forever. If they do this quickly National and most Councils can have a global settlement in mid-2021.

Edited by CynicalScouter

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If a scout unit were a franchise, the Chartered Organization would be protected from arbitrary revocation of its annual charter.  Franchises have legal rights.

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Posted (edited)

It is not a black and white issue. 

Briefly, the more control that a franchisor  exerts over a franchisee and the more that the franchisee can legally bind the franchisor, the more the franchisee looks like a division of the franchisor instead of a separate entity.  Conversely, the more independence a franchisee demonstrates, the more it looks independent, rather than being a division of the franchisor.

 

In Golden Spread Council, Inc. # 562 of the Boy Scouts of America v. Akins, 926 S.W.2d 287 (Tex.1996),  the Texas Supreme Court considered whether the National Boy Scouts of America (BSA) could be held vicariously liable for the tortious acts of a Scouter (child molestation during Scout activities) who was, at the time employed by a local troop chartering organization as Scoutmaster.  The court applied the standard master-servant relationship test [which comes down to control of the work], but ultimately concluded that BSA had insufficient control to warrant vicarious liability. (The Council was held subject to trial for its own actions in recommending the molester to the chartering organization despite prior reports of child molestation by the molester.)

 

Interesting document filed on behalf of BSA in bankruptcy.

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/805684_21.pdf

 

 

Edited by RememberSchiff
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10 hours ago, TAHAWK said:

Interesting document filed on behalf of BSA in bankruptcy.

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/805684_21.pdf

Pages 24,25 of 82 of above... BSA's view

3.Delivery of the Scouting Programs

Local Councils, and Chartered Organizations work closely together to carry out the mission of Scouting. Each of these entities plays a vital role in training Scouts in responsible citizenship, character development, and self-reliance. Despite their common purpose, the BSA, Local Councils, and Chartered Organizations are legally independent entities. Each Local Council is a non-profit corporation under the laws of its respective state and exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. Each Local Council also maintains its own senior management and independent volunteer board of directors. The BSA does not hold any equity interest in any Local Council, Chartered Organization, or Scouting unit, and only the BSA and its wholly owned subsidiary, Delaware BSA, LLC, are debtors in these Chapter 11 Cases.7

a.Local Councils

In furtherance of its mission, the BSA charters independently incorporated Local Councils to facilitate the delivery of the Scouting program. Local Councils are not agents of the BSA, and they have no authority to bind the organization. There are currently 261 Local Councils, covering geographic areas of varying size, population, and demographics. Although they are legally independent of the BSA, Local Councils are required to organize, operate, and promote Scouting in a manner that is consistent with the BSA’s mission and with the BSA’s charter, bylaws, rules and regulations, policies, and guidelines. Local Councils generally do not receive financial support from the BSA; instead, they rely upon their own fundraising through donations, product sales, special events, and corporate gifts. The BSA does, however, provide certain corporate and administrative support to the Local Councils in exchange for shared-services and other fees and reimbursements, as well as for the assistance of Local Councils in delivering the Scouting mission. This support includes human resources, access to training facilities, marketing services, and general liability insurance coverage.

Although not a precise analogue, the relationship between the BSA and the Local Councils is similar to that of a franchisor and franchisee. The BSA is responsible for developing and disseminating the structure and content of the Scouting program, owns and licenses intellectual property, and provides training and support services, including corporate services such as human resources, marketing and legal functions, and information technology. The BSA, in addition to holding the power to grant charters to Local Councils, may also revoke a Local Council’s charter for failing to meet national standards. Local Councils, for their part, play a key role in delivering the Scouting program. Local Councils also serve the vital function of collecting member fees and remitting such funds to the BSA. Each of these Local Councils is crucial to the BSA’s ability to carry out its mission.

The most important functions served by Local Councils are their recruiting of Chartered Organizations and their oversight of the operation of the Scouting units that those Chartered Organizations create. Local Councils also provide other services essential to Scouting, including: funding of local Scouting programs and initiatives; recruiting of Scouts and volunteer leaders; providing Scout and volunteer training; offering opportunities for rank advancement; locally enforcing the BSA’s policies, rules, and regulations; and registering members and leaders. In addition, many Local Councils own and operate service centers, camps, and other facilities that provide the local resources necessary for a successful Scouting program.

A corps of qualified and trained professional and volunteer Scouters is essential for Local Councils to provide these services. To that end, each of the Local Councils hires a professional Scout executive and other key staff from a pool of professionals—pre-commissioned by the BSA—who have demonstrated the moral, educational, and emotional qualities necessary for leadership. Those commissioned professionals and other staff members support the Local Councils in connection with day-to-day operations, recruitment of new Chartered Organizations, management of fundraising, maintenance of program facilities, and numerous other services. Thousands of volunteers also donate their time and resources to support the Local Councils, including through assistance with programming, such as unit leadership, unit activities, merit badge colleges, youth and adult leader training and advancement opportunities, and fundraising events.

b.Chartered Organizations

There are currently more than 41,000 Chartered Organizations in the country. They are typically local organizations—such as faith-based institutions, clubs, civic associations, educational institutions, businesses, and groups of citizens—that sponsor the more than 81,000 local Scouting units throughout the country. Some Chartered Organizations are actively involved with the units that they sponsor and use Scouting as a means to further in their own mission or serve their broader communities. In addition, Chartered Organizations assist with recruiting and vetting adult leaders and other volunteers, and provide meeting space and other monetary and in-kind support to the packs and troops that they sponsor.

 

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Posted (edited)
On 6/24/2020 at 10:23 PM, RememberSchiff said:

As I understand , National has to seek permission from the Bankruptcy Court  for new financial transactions - hiring, buying, selling outside of what was initially court allowed, but  "independent" councils do not. This might soon change  as on July 8 when participating councils will provide a list of  their assets to the court.  Consider the sudden rush to sell Camp Pioneer  in Caddo Area  Council (AR) by June 30..  Maybe a  coincidence?

The really “hard decision” would be to take a step back and honor their fiduciary responsibility to secure the best deal for the Council. It does not take a real estate professional to recognize that an unsolicited cash offer, with a short deadline, for an unlisted property with no professional appraisal is seldom the best offer or even a fair offer. The Executive Board should know that, and they should also know that anyone who is truly interested in purchasing the property will still be interested beyond June 30.

https://txktoday.com/news/letter-to-the-editor-sale-of-camp-pioneer-boy-scout-camp-raises-concerns/

Update 6/27/2020:

Board members for the Caddo Area Council of the Boy Scouts will meet Sunday (6/28) to consider selling Camp Pioneer.

"We received an offer to purchase Camp Pioneer, one of our two camp properties, which has been largely unused for more than two years due to required but cost-prohibitive repairs and improvements," wrote Anthony Escobar, scout executive for Caddo Area Council, in an emailed and prepared statement provided to the Gazette.

Camp Pioneer is located near Hatfield, Arkansas, which is about 90 miles north and west of Texarkana.

The meeting to consider the offer will apparently be conducted via Zoom at 6 p.m. Sunday.

...

A memo circulating that bears Escobar's name indicates it is a "strong cash offer" to purchase the Camp Pioneer property with the offer expiring Tuesday.

Escobar told the Gazette he did not send out the memo.

https://www.texarkanagazette.com/news/texarkana/story/2020/jun/27/boy-scouts-may-sell-camp-pioneer/832301/

Update 6/30/2020:

On Sunday night, the council's executive board met in special session to review an offer for the purchase along with a second offer that was made immediately prior to the meeting. The governing board found the second offer deficient and provided an opportunity for its presenter to cure those deficiencies by 5 p.m. on Monday. After its presenter did not do so, the original offer was accepted, said Executive Director Anthony Escobar, in a letter released Monday night.

No information on who purchased the property was available.

https://www.texarkanagazette.com/news/texarkana/story/2020/jun/30/boy-scouts-selling-camp-pioneer/832597/

Edited by RememberSchiff

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Posted (edited)

The Official Committee of Tort Claimants issued a response (docket 915 6/30/20 which included paragraphs below) to Debtors "exclusive period to file a chapter 11 plan and solicit acceptances thereof" (docket 858 6/16/20 below) and the recent selling of Council properties.

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/825183_858.pdf

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/829282_915.pdf

5. As the parties move towards the substantive mediation sessions and other negotiations in these cases, the Debtors must do more to protect the estates’ property for the benefit of all creditors. Certain of the Local Councils’ recent tax filings show that the Local Councils have more than $2.1 billion in real property and improvements and $1.2 billion in cash and investments. The Tort Claimants’ Committee is aware that certain Local Councils have sold real property and are informed that other Local Councils are contemplating real property transfers presumably for the purpose of putting the real property beyond the reach of creditors. Simple Google searches reveal numerous articles about contemplated sales of Local Council assets. In addition, the Tort Claimants’ Committee received information from one Local Council that it has planned and intends to transfer real property to a foundation in exchange for no consideration.

6. The foregoing is troubling for many reasons. As the Court is aware, the Local Councils are subject to hundreds of prepetition actions that were stayed as a result of the Court’s entry of the preliminary injunction order. Since the preliminary injunction order was entered, other sexual abuse victims have sued the Local Councils as permitted under the injunction by filing and serving complaints against the BSA-related parties for the purpose of preserving claims. While the abuse claimants are prohibited from prosecuting their claims against the Local Councils or taking any other action to preserve their rights and remedies, the Local Councils are not restricted from transferring or shielding assets from sexual abuse claimants.

7. The Debtors have contingent interests in the Local Councils’ assets and, to fulfill their fiduciary duties as debtors in possession, must protect those interests. Under the Debtors’ Charter and Bylaws, the Debtors have significant rights and powers that enable them to maintain the status quo and preserve their interest in the Local Councils’ assets for the benefit of the estates and creditors. See BSA Charter and Bylaws, Art. VI (Local Councils must provide information regarding assets, funds, properties and indebtedness upon request by the National Council, and the National Council can conduct compliance audits on the Local Councils). Under Article VI, the Debtors have a powerful tool to ensure that the Local Councils comply with such requests and audits and thereby prevent any action to impair the Debtors’ interest in the assets or the proceeds of those assets: the BSA can terminate a Local Council charter and take over the management of the Local Council’s assets. This power is unfettered and may be employed by the Debtors for any reason. Maintaining the status quo more than justifies the Debtors’ invocation of this power as it will ensure that assets within the Debtors’ bankruptcy estates are not transferred or otherwise put beyond the reach of abuse victims.

8. To date, the Debtors have failed to take any meaningful action in response to the efforts by Local Councils to transfer or sell their assets. While the Local Counsels might not be debtors in these Cases, they and the Debtors have a duty to preserve their assets and maintain the status quo while they are being protected by the injunction. The Debtors’ unilateral right to revoke Local Council charters demonstrates they not only control the Local Councils’ existence but also provide the means to ensure that the Debtors’ contingent interest in the Local Councils’ assets are not compromised in advance of mediation and resolution of the claims in these Cases.

9. If the Debtors’ fail to protect their interest in the Local Councils’ assets, the Tort Claimants’ Committee reserves all rights and remedies to address this risk for the benefit of sexual abuse claimants and the estates. The Debtors’ failure to protect the estates’ interest in the Local Council assets provides a basis to terminate the Debtors’ exclusive right to file and solicit votes for a plan.

Update 7/6/2020:  https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/830557_955.pdf Debtor (BSA National) reply to above. Here are parts

3...Specifically, the Tort Claimants’ Committee alleges that these transfers are “presumably for the purpose of putting the real property beyond the reach of creditors.” ...As the Debtors have informed the Tort Claimants’ Committee, they are unaware of any acts demonstrating that any local council board has acted (or is acting) in a manner inconsistent with its fiduciary obligations or charter agreement. Local councils reevaluate their real estate holdings in the ordinary course of their operations and may determine to sell such assets from time to time to maintain liquidity and support their charitable missions. The Tort Claimants’ Committee should not “presume” that property sales by local councils are intended to evade creditor claims, or for any purpose that is inconsistent with their charitable missions. Nor should local councils be expected to refrain from exercising their independent business judgment simply because they may be asked to contribute to a settlement trust under the Debtors’ plan of reorganization.

5. Finally, the Debtors must also dispel the Tort Claimants’ Committee’s suggestion that the only “meaningful” action the Debtors can take with respect to local council asset sales is to terminate local council charters and “take over the management” of local council assets. See D.I. 915 ¶ 7. Setting aside whether it would be appropriate for the BSA to take any such action, these are drastic remedies that would have far-reaching consequences, both for the Debtors’ estates and the mission of Scouting. As noted above, moreover, the Debtors have no information that any local council has acted (or is acting) in a manner inconsistent with its fiduciary obligations or charter agreement.

Edited by RememberSchiff
update National reply 7/6/2020
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Let the fight begin. It would have been easier if they had started with the last sentence.

I wonder what happens in the scenario where a council property is "hidden" by giving it to a holding company with the intent of getting it back in the future, the council is disolved and a new one replaces it. Where does that leave the property? Legal ring 6, probably.

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On 7/1/2020 at 8:58 AM, MattR said:

[...]

I wonder what happens in the scenario where a council property is "hidden" by giving it to a holding company with the intent of getting it back in the future, the council is [dissolved] and a new one replaces it. Where does that leave the property? Legal ring 6, probably.

I would guess a bankruptcy judge has power to void such a "gift".  However, at least in my own Council, I don't see anything like that going on.  What has happened to camps includes:

  • Being allowed to revert back to the original donor, where the original gift was with conditions (a small camp, no waterfront, donated by the Kiwanis Club)
  • Sold to a housing-developer, and houses built on it (part of one camp already, that may be what happens to the other half after it closes; the nearest YMCA camp also has a development of 5-to-15-year-old houses on what was probably a big chunk of the original parcel.)
  • Leased or sold for mineral extraction.

If a council sells a camp in an arm's-length transaction and puts the money in the bank, the creditors/plaintiffs shouldn't have anything to complain about: either they get the land (and have to sell it themselves) before the sale, or they get the cash afterward.

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7/9/2020: Chapter 11 Judge Silverstein gives BSA more time.

The exclusive period for the Debtors to file a chapter 11 plan (the “ExclusiveFiling Period”) is hereby extended by approximately 120 days, to and including October 15, 2020. The period during which the Debtors have the exclusive right to solicit acceptances thereof (the “Exclusive Solicitation Period” and, together with the Exclusive Filing Period, the “Exclusive Periods”) is hereby extended by approximately 120 days, to and including December 15, 2020.  ~ Judge Silverstein

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/831747_996.pdf

Note:  The exclusive periods under section 1121(d) of the Bankruptcy Code are intended to afford the Debtors a full and fair opportunity to formulate and propose a chapter 11 plan and to solicit acceptances there of without the disruption that might be caused by the filing of competing plans of reorganization by non-Debtors parties. Where the exclusive periods prove to be unfeasible timeframes (e.g. covid-19), the judge may extend.

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24 minutes ago, RememberSchiff said:

 

The period during which the Debtors have the exclusive right to solicit acceptances thereof (the “Exclusive Solicitation Period” and, together with the Exclusive Filing Period, the “Exclusive Periods”) is hereby extended by approximately 120 days, to and including December 15, 2020.

As I read this, it means that we get another 15-30 days of the "file your claim now" advertisements?

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7/9/2020: Council asset transfers were also argued.

Boy Scout local councils own most of the youth organization’s wealth, with more than $3 billion in land, facilities, artwork, investments and other assets, compared with the $1.4 billion that is on the books of the national group.

They didn’t join in with the February bankruptcy filing of the national organization. However, more than 250 of them are sharing the bankruptcy shield that automatically blocks lawsuits over alleged decades of abuse at the hands of Boy Scout volunteers.

In exchange for a reprieve from lawsuits, local councils are supposed to alert the national Boy Scouts of asset transfers, and the national group is supposed to pass the information along to the official survivors committee... the committee is reportedly finding out about campground sales from Google searches and news accounts, rather than from the Boy Scouts themselves.

https://www.wsj.com/articles/boy-scouts-bankruptcy-roiled-by-suspicions-about-asset-transfers-11594325864?st=13a1m1qe8kdgpax

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19 minutes ago, RememberSchiff said:

Boy Scout local councils own most of the youth organization’s wealth, with more than $3 billion in land, facilities, artwork, investments and other assets, compared with the $1.4 billion that is on the books of the national group.

They didn’t join in with the February bankruptcy filing of the national organization. However, more than 250 of them are sharing the bankruptcy shield that automatically blocks lawsuits over alleged decades of abuse at the hands of Boy Scout volunteers.

So 250 of what 270 councils turned over their financials to the process.  I'd be interested in why the 20 didn't.  Do they believe they are that safe or that they are already on-the-rocks so they are covered by some participating council following a merger?

I'm just a simple guy but the math isn't adding up for me.  The WSJ article said there are more than "10,000 claims of sexual abuse."  If each of those claims settled for $1million, that $10 billion dollars, more than double the assets of National and the Councils.  I get that's a border case.  But if the average claim is $500,000 that's still more than the total assets.  If half of the claims are deemed false and the other half settles for $1MM that's still more.  If only half are legit and settle for $500,000 each that's 60% of all the assets.  I also understand the settlements will be structured over time and the assets in the victims fund will have some ROI, etc., I just wonder where the threshold is for continued viability.  Can the BSA (Nation and Councils) liquidate 40% of all assets and survive?  20%, 50%?

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All good points. Another question, the amount our insurers will contribute to victims fund.

Maybe the victims fund will roll into an annuity with annual victim payments?

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1 hour ago, walk in the woods said:

 If only half are legit and settle for $500,000 each that's 60% of all the assets.  I also understand the settlements will be structured over time and the assets in the victims fund will have some ROI, etc., I just wonder where the threshold is for continued viability.  Can the BSA (Nation and Councils) liquidate 40% of all assets and survive?  20%, 50%?

I would assume the following: a Victims Fund that a) has a lump sum dropped in on a date in 2021 and b) continual annual payments for XX years into that fund.

So it wouldn't require liquidating 60% of current assets.

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