Chapter 11 Pauses Lawsuits Vs. USA Gymnastics
December 7, 2018 Mark Hrywna
USA Gymnastics (USAG) filed for Chapter 11 bankruptcy, putting on hold scores of lawsuits as well as a move to revoke its status as the national governing body.
The Indianapolis, Ind.-based 501(c)(3) organization filed the voluntary petition on Wednesday in the U.S. Bankruptcy Court for the Southern District of Indiana, which stays all pending actions against it, including more than 100 lawsuits by hundreds of former gymnasts.
In its bankruptcy filing, USAG estimates the potential impact of victims’ lawsuits to be between $75 million and $150 million. Primary assets were listed as only $6.5 million.
In November, the United States Olympic Committee (USOC) moved to revoke national governing body status. That also is on hold during bankruptcy proceedings.
Chapter 11 bankruptcy is a reorganization that allows the entity to operate and remain solvent while Chapter 7 liquidation would have ceased operations and sold off assets to pay creditors.
The Chapter 11 filing “was not made for financial reasons, according to USAG, “but as a reorganization to enable the survivor’s claims, which are covered by insurance, to be resolved on an expedited basis.” USAG said it has funds to support day-to-day operations and obligations and is not seeking additional funding.
USAG is facing more than 100 lawsuits from gymnasts who said they were abused by Larry Nassar, a former national team doctor from Michigan State University.
“We owe it to the survivors to resolve, fully and finally, claims based on the horrific acts of the past and, through this process, seek to expedite resolution and help them move forward,” board chair Kathryn Carson said via a press release announcing the filing. “The Chapter 11 filing and the expedited resolution of these claims are critical first steps in rebuilding the community’s trust,” she said. The former chief legal counsel for the U.S. Golf Association, Carson joined the reconstituted board in June after the 18-member board resigned en masse. She was elected chair in November.
John Manly, an attorney representing survivors, said via Twitter that the bankruptcy filing will delay resolution of those lawsuits because it puts depositions and discovery in those cases on hold.
“This means the process of discovery stops for the civil attorneys representing Nassar victims. A predictable and defensive move by an organization already reeling,” John Barr, a reporter for ESPN, said via Twitter.
Apart from insurance proceeds, USA Gymnastics said it has “no other significant assets that could be used to play claims.”
The survivors’ claims against USA Gymnastics are covered by insurance previously purchased by the organization, and the amount of available insurance proceeds available is not affected by the bankruptcy filing, according to the statement. USA Gymnastics believes that the Bankruptcy Court is the “best forum in which to implement appropriate procedures to equitably determine and allocate the insurance proceeds among claimants, allowing compensation to survivors to proceed more quickly than litigation filed in multiple courts around the country,” the statement continued.
The largest creditor, almost $340,000, was listed as former CEO Steve Penny. He resigned in 2017 with a reported $1 million severance. In October, he was arrested after being indicted on charges of tampering with evidence in the Nassar case.
USAG is seeking a permanent CEO. The Chapter 11 filing noted it has hired a search firm and expects to hire someone in early 2019. Interim President Mary Bono abruptly resigned after being criticized for a controversial tweet related to the 30th anniversary of Nike’s “Just Do It” campaign featuring Colin Kaepernick.
USAG reported total revenue of $34.4 million in 2016, according to the most recent tax form available. In addition to $5 million in contributions and grants, some $27.7 million was generated via program revenue, including $13 million from member services and $12.9 million from national event revenues. Net assets were listed as $3 million, up from less than $1 million in 2015.
As president, Penny earned $670,729 in total compensation, including $100,000 in bonus and incentives, $30,000 in nontaxable benefits and $31,000 in other reportable compensation.
Michigan State University this week completed a $500 million payment into a fund specifically created for victims of Nassar, who worked at the university. He was convicted of abusing hundreds of former gymnasts. As part of a settlement in May, a court mandated The Qualified Survivor Fund would receive $425 million and $75 million would go to a litigation fund.