Thursday, February 09, 2012

How Should the SCA Be Structured?

"The SCA is an international organization dedicated to researching and re-creating the arts and skills of pre-17th-century Europe."

Recently, the Society for Creative Anachronism (SCA) settled an expensive lawsuit. This is an except from their statement.

Several years ago, a former SCA member named Ben Schragger was convicted of the sexual abuse of multiple children that he allegedly met through the SCA from 1999-2001. He was sentenced and is currently serving a 62-year prison sentence. The Board, of course, permanently revoked his SCA membership.

After an initial civil lawsuit was filed and dismissed in 2007 against the SCA, a second civil lawsuit was filed in 2009 claiming that the SCA should be held liable for Mr. Schragger’s wrongdoing. The lawsuit also asked that the SCA be held liable for allegedly not having effective policies in place at that time to protect these children. Three SCA participants who were local officers during this time were also named as defendants in the lawsuit. The Plaintiffs in the lawsuit demanded Seven Million Dollars ($7,000,000.00) in damages from the SCA. In accordance with Corpora and the Bylaws, the SCA agreed to indemnify the three individual local officers who were named in the lawsuit.

The SCA immediately tendered the lawsuit to its insurance companies and one insurer agreed to cover the SCA’s attorney’s fees incurred in defending the lawsuit. All other insurers refused to cover defense fees or indemnify the SCA in the event of a settlement or judgment.

In 2010, both insurance carriers threatened to file suit in Federal Court. They wanted a Federal Court judge to rule that the insurance policies did not cover the 2009 lawsuit and did not cover the defense or indemnification of the SCA or its officers in the 2009 lawsuit. As a protective measure, it was necessary for the SCA to file a pre-emptive lawsuit against both insurance carriers, demanding payment under the policies. In this lawsuit the SCA demanded coverage in California, where the SCA is headquartered. The SCA has been required to pay the attorney representing the SCA in this lawsuit against the insurance carriers. It stands to reason that payment of these fees has left the SCA in a precarious financial position.

In October of 2011, the victims agreed to settle for $1,300,000.00. This settlement was presented for approval to both the SCA’s insurers. The acceptance of this offer provides the SCA, Inc .with the assurance that there will be no further lawsuits brought by the victims of Ben Schragger and thus brings to a close the financial and legal risk to the Kingdoms, officers, and the SCA as a result of the lawsuit. One insurance carrier agreed to pay $450,000 of the settlement amount. The other insurance carrier has refused to contribute to the settlement. Therefore, the SCA has been forced to pay the remainder of this settlement, $850,000. This brings the total cost to the SCA for both the settlement and the related legal fees to over $1M.

The SCA is continuing its lawsuit against the insurance carrier that refused to contribute to the settlement and is seeking repayment of the full $850,000.

A single corporation, SCA, Inc., covers most Society activity. In Australia, New Zealand, Sweden and Finland there are affiliated corporations that are responsible for Society activity in their jurisdictions.

It has been argued that a more decentralized corporate structure would make the Society less vulnerable to litigation. For example, all of the kingdoms might be organized as affiliated corporations. SCA, Inc. would control the common rules and standards for medieval recreation throughout the Society.

This model would have the advantage of limiting the worst case outcome of litigation. Presumably, had such a structure been in place before the recent unpleasantness, SCA, Inc. and the East would have been sued, but the other kingdoms’ assets would not be directly at risk.

In theory, by reducing the potential amount that could be won, some potential lawsuits would become unprofitable for the plaintiffs to litigate, and would either not be pursued or settled for a lower amount than under the current structure.

In the recently settled lawsuit, I do not think this would have been the case. Under the decentralized model I described, the assets of the local officers and their personal umbrella insurance, if any, and the assets of the East and the Society, Inc., and whatever umbrella coverage the hypothetical corporate structure provided to officers would all be at risk. This would seem to be enough to motivate the plaintiffs to pursue their claims at least as vigorously as they did under the current system.

There are disadvantages to the decentralized model as well as advantages. The collective entities being sued have shallower pockets. This makes them less attractive to sue, but also gives them less resources to mount a defense. A smaller entity might need to settle on unfavorable terms because it was simply unable to afford to fight to the finish.

And a decentralized organization can have higher total costs to litigate a given case. If the East was an independent corporation affiliated with SCA, Inc., the two entities would have divergent interests in a lawsuit, and probably each would want their own counsel.

There are other costs to decentralization, as each separate legal entity adds some additional work and expense.

There are also other reasons to want a more decentralized structure, but I think it’s a mistake to believe that decentralization would be a panacea for protecting the Society from expensive lawsuits.


Steve Muhlberger said...

I am hesitant to accept the idea that decentralization would protect us from lawsuits because we would no longer have deep pockets. In a case like this, as in elite athlete compensation, money may be symbolic: "I am suing BECAUSE SOMEONE SHOULD PAY." SCA local officers were sued even though no one (on our side) thinks they did anything wrong. Without our deep pockets, they would have lost everything when all they were doing was administering our game on a local level. It could have been any of us.

Anonymous said...

Perhaps the local officers were sued because two of them had previously warned Ben about his behavior with children without reporting him to police. That, not deep pockets, might be the real issue.

It is true, on "your side" no one thinks they did anything wrong. Neither does anyone at Penn State. Therein is the heart of the whole matter I suspect.

Steve Muhlberger said...

Of course most of us have only anonymous reports like this to go on.

Will McLean said...

That's a fairly serious line of speculation, Anonymous. I will note that in filing the lawsuit, the plaintiffs did not allege that they had definite knowledge of such a thing, but that the defendants "knew or should have known." And the "should have known" is carrying most of the weight.

Allison said...

I am not the original "anonymous" but what he/she said is completely correct. The local officers were warned about Ben's behavior, and several complaints from parents had already been lodged. There is no way they didn't know something was going on.

My understanding of the case is that the families who agreed to be part of the lawsuit asked that the SCA not be sued directly so as not to bankrupt the organization. So the lawyer sued the insurance companies, and the only way to do that was to name local officers (who were covered) as defendants. The money was never, ever, the issue however. The point was to force the SCA to institute some safeguards for kids, like background checks. Without the lawsuit the SCA would not have done anything.

Anonymous said...

the real issue is exactly that most of us only have anonymous reports. the sca strucgture has always been cult like with no accountability, audit or oversight to the participants. they should now reveal waht happened in the ben schragger case, but the leasership are still protecting themselves and have no regard for the welfare of children nor for decency in the sca. bullying and abuse are rampant.

steve muhlberger should be ashamed of his comments. he has personal knowledge of a law suit against the sca in his kingdom. there they paid out thousands of the participants money rather than allow the truth to be spoken.

the issue is not to create less deep pockets but to create a society that runs on accepted principles of ethics. you are not responsible for everything that goes wrong, you aquire legal liability for covering up wrong doing and mismanagema=ent. the present sca structure is a recipie for cover up and mismanagement. everything is done behind closed doors and in many cases tortious behavior and even criminality have been covered up because the offenders are high ranking within the structure. no one else gets heard. no audit is allowed and there is no information to the participants. that's how you create liability nd criminality.

the sca and especially the east kongdom need a general house cleaning of anyone who was involved with ben the stewart or any other offenders. they should allowed to play but never agin be allowed into the decision making. the eat ewas foundered by world famous pedophile walter breen, whic died in jail, amnd his wife marion zimmer bradley(who dited breen's book "greek love" on child seduction and lost a major damages suit for her involvemengt). those around these people should be dismissed from decision making and all future dec\isions should be public. if you let the air in things won't smell so terrible

Will McLean said...

Anonymous, you are correct. Anonymous reports are usually problematic.

Anonymous said...

I suspect that Anonymous is posting as such for the same reason I am, namely that this very system punishes those who dare to speak up about things that disturb the peerage.

Anonymous said...

Multiple times the argument over centralized vs decentralized incorporation has been discussed by the Board of directors. They've always favored the centralized mode. This has one advantage not otherwise mentioned: When a regional group drops below the required numbers, the Society can lower the status. This has happened on the barony/shire level. Likewise when a regional group grows to be large enough to be a sibling of their parent, not having to split an existing corporation into two also is of benefit.

6 years on, and the society has made some changes, but still is organized the same way.