USA Gymnastics – Files Chapter 11 to Address Nassar Abuse Claims

December 5, 2018 – USA Gymnastics (or “USAG”) filed for Chapter 11 protection with the U.S. Bankruptcy Court for the Southern District of Indiana, lead case number 18-09108 [Docket No.1]. USAG, a not-for-profit organization that is national governing body for gymnastics in the U.S., is represented by Catherine Steege of Jenner & Block LLP.

The petition notes creditors number between 1,000 and 5,000; estimated assets between $50mn and $100mn; and estimated liabilities between $50mn and $100mn. Documents filed with the Court list the organization’s three largest unsecured creditors as (i) Stephen D Penny Jr, ($339,999.96, severance compensation claim), (ii) Fidelity Investments 2018 ($236,984.10, vendor claim) and (iii) Plews Shadley Racher & Braun LLP ($200,000.00, vendor claim).

In a press release announcing the filing, the organization says, “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.”

Events Leading up to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Shollenbarger Declaration”) [Docket No. 8], USAG’s chief financial officer, James Scott Shollenbarger, advised that as a result of the misconduct of Larry Nassar, who was employed by Michigan State University (“MSU”) and served as a volunteer to USAG, the organization has been named as a defendant in approximately 100 lawsuits brought by survivors of Nassar’s abuse.
“Presently hundreds of individuals have asserted claims in Michigan, California, and elsewhere against MSU and other defendants as a result of Nassar’s abuse; over 350 of those individuals have also asserted claims against USAG. The Michigan and California lawsuits were mediated as a consolidated group, with MSU and the plaintiffs having reached a $500 million settlement. USAG also faces cases and claims arising out of Nassar’s criminal conduct in other jurisdictions around the country.”

The Shollenbarger Declaration continues, “USAG has insurance coverage encompassing numerous policies covering approximately 30 years, which I expect will provide substantial coverage for the amounts asserted in the various lawsuits and claims. Nevertheless, I understand that the applicable insurance proceeds may be insufficient to cover allowed claims of survivors against USAG. For this reason, USAG filed this chapter 11 case to establish an orderly procedure for the allocation of its insurance proceeds.”