Under severe financial pressure following a torrent of sexual abuse allegations, USA Gymnastics filed for Chapter 11 bankruptcy in Indiana in 2018. But that filing and its restructuring plan have drawn criticism from the victims and their advocates, who claim USAG is wrongly using bankruptcy to mitigate its liability for the abuse and completely shield the U.S. Olympic and Paralympic Committee, which is also culpable.
The plan reportedly includes the creation of a $215 million settlement fund for hundreds of victims who claim USAG enabled its former team doctor Larry Nassar to abuse them over the course of two decades. As reported by Vince Sullivan in Law360, USAG “proposes to fund the settlement payments through the proceeds of insurance policies issued by CGL Insurance.” But, any recovery from the fund would require those former gymnasts “to release both the organization and the U.S. Olympic and Paralympic Committee from liability related to the claims.”
Bankruptcy maneuvering delays victim compensation
USAG has been in bankruptcy proceedings for more than a year. The organization sought bankruptcy protection from the hundreds of lawsuits victims had filed in the wake of the Nassar revelations. Those lawsuits charged negligence on the part of USAG and USOPC for their failure to properly supervise Nassar and protect vulnerable girls from his predatory actions. The victims’ attorneys have objected to multiple extensions granted USAG to file its Chapter 11 plan.
Under Chapter 11, a business can file bankruptcy and receive an immediate, automatic stay, a court order that prohibits any creditors from collecting on debts. Plaintiffs that seek to recover damages for personal injuries fall into this category of creditors. Therefore, the lawsuits are frozen until the bankruptcy is resolved. Chapter 11 is not a dissolution bankruptcy; it’s a restructuring that allows a company to keep operating under a plan to partially repay its creditors.
In late January, attorneys for the victims asked the court to dismiss the bankruptcy case, “saying it was filed only to protect the organization from the consequences of its ‘depravity’ as it seeks to restore its image ahead of the 2020 Summer Olympics in Tokyo.” It is a principle of bankruptcy law that relief is only available for honest but unfortunate debtors, not those who acquire debt through malfeasance. The action — or more accurately inaction — of USAG could easily be viewed as depraved indifference, raising the question of whether the organization is worthy of bankruptcy protection.
Using the law to avoid responsibility?
In addition to the monetary issue, victims’ attorneys charge USAG’s bankruptcy plan “doesn't do anything to deal with the institutional problems that allowed Nassar's abuse to continue for so many years.” Absent are “the critical structural changes necessary to ensure the safety of girls moving forward….”
Attorneys also object to USOPC piggy-backing on the USAG plan, which requires victims to relieve that organization, which is not a party to the bankruptcy, from liability. A statement from attorneys complained that, "Most disturbingly, this proposed plan attempts to absolve USOPC of any responsibility for these crimes which were committed under its watch. This plan from USAG is not just unworkable, it is unconscionable."
The proposed plan would allow plaintiff gymnasts to opt-out of the settlement and take their claims to court, but USAG insists any court awards must come “from the same insurance proceeds.” USAG also plans to “set aside about $5 million from the policy proceeds to cover any future abuse claims.” It is not clear how many of Nassar’s victims have yet to come forward, so any estimate of how far that $5 million would go is pure speculation.
Nassar, who was effectively sentenced to life in prison on multiple sexual abuse charges, was also a longtime employee of Michigan State University. MSU “reached a $500 million settlement with the gymnasts in March” of 2019.
Immediate action on sexual abuse claims is often necessary to get positive results
This case illustrates the importance of bringing a lawsuit for sexual harassment or abuse early before a defendant’s assets are depleted. At Whistleblower Law Group, we understand it is difficult for victims to be the first to speak up about abuse. But delayed action could mean delayed justice, or worse yet, justice denied. If you have been the target of sexual harassment or abuse, we are here to help.
If you are the victim of sexual abuse, call us at 888.249.6944 or contact us online. We keep all inquiries strictly confidential.