617 B.R. 671
Bankr. N.D. Cal.2020Background
- PG&E Corporation and Pacific Gas and Electric Company filed chapter 11 after massive 2015–2018 Northern California wildfires, generating billions in wildfire claims and thousands of creditors.
- Debtors and Shareholder Proponents submitted a Joint Chapter 11 Plan proposing 30 classes of claims and 4 classes of interests, creation/funding of a Fire Victim Trust, Subrogation Wildfire Trust, Public Entities Segregated Defense Fund, channeling injunctions, and a mix of cash and equity recoveries to fire victims.
- Confirmation trial occurred May 27–June 8, 2020; court received multiple sworn declarations and exhibits and planned to enter a Confirmation Order (OCP) after resolving remaining drafting issues.
- Regulators (CPUC, FERC) gave material approvals/consents; plan designed to satisfy AB 1054 (ratepayer neutrality) and statutory confirmation standards under 11 U.S.C. § 1129.
- Multiple objections raised (e.g., securities/registration rights, executory-contract cure language, releases/exculpation, classification of fire claims, feasibility). Many disputes were mediated and most objections were overruled; a few items reserved for final order or mediation outcomes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Compliance with §1129(a) (confirmation elements and feasibility) | Debtors: evidence and declarations show plan meets all §1129(a) and (b) requirements and is feasible | Objectors (e.g., Abrams): plan not feasible, not in good faith, favors investors over victims | Court: Debtors met burden by preponderance; plan satisfies §1129(a) elements and is feasible; limited reservation re §1129(a)(8) for Class 10A‑II pending mediation outcome |
| Release of estate claims (Plan §10.9(a)) | Debtors: may release claims belonging to the estate as a settlement under Rule 9019 | Objectors: release is overbroad and improperly discharges non‑debtors | Court: Overrules objections; estate may release its claims if business judgment/Rule 9019 standard met; releases do not force third parties to relinquish their independent claims |
| Non‑debtor releases and exculpation (Plan §10.9(b) and exculpation) | Proponents: releases are consensual (affirmative opt‑in) and exculpation is limited to plan‑process actors | Opponents (UST, others): non‑debtor releases and broad exculpation unlawful and nonconsensual | Court: Overrules objections; opt‑in releases are permissible; exculpation covering plan‑process participants is allowed under controlling circuit precedent when appropriately limited |
| Assumption/rejection of executory contracts and Plan §8.2(e) language | Debtors: proposed language to effect releases on assumption and streamline treatment | OCUC: language improperly waives cure/assumption obligations under §365 and allows disallowance of valid contingent claims | Court: Finds proposed language ambiguous and too broad for assumed contracts; instructs meet‑and‑confer to revise OCP language to preserve §365 cure/assumption rights; grants limited schedule extension (30 days) to assume/reject contracts |
| Classification and treatment of fire claims (multiple fire‑victim classes) | Debtors: separate classes (fire victims, subrogation claims, public entities) justified by differing legal theories, tailored procedures and negotiated settlements | Some fire claimants (e.g., Garrison): similar claims improperly split to disadvantage victims | Court: Overrules objection; separate classification has adequate business/economic justification and is permissible under §1122/1123 |
| Registration rights / monetization of trust equity and securities litigation | Fire‑victim representatives: concerned plan lacks details protecting Trust when monetizing PG&E Corp stock; securities plaintiffs contest aspects | Debtors/TCC/Trustee: mediated stipulations reached on registration rights and valuation mechanics; securities claims in mediation | Court: Approved stipulations re registration‑rights mechanics; deferred final disposition of securities litigation to mediation outcome or later order |
Key Cases Cited
- NLRB v. Bildisco & Bildisco, 465 U.S. 513 (U.S. 1984) (treatment of executory contract assumption/rejection in bankruptcy)
- Elliott v. Four Seasons Props. (In re Frontier Props., Inc.), 979 F.2d 1358 (9th Cir. 1992) (assumption requires cure and full performance)
- PWS Holding Corp., 228 F.3d 224 (3d Cir. 2000) (upholding limited exculpation covering plan‑process participants)
- Resorts Int’l v. Lowenschuss (In re Lowenschuss), 67 F.3d 1394 (9th Cir. 1995) (limits on nonconsensual third‑party releases)
- Martin v. Kane (In re A&C Props.), 784 F.2d 1377 (9th Cir. 1986) (Rule 9019 requirements for approval of settlements/releases)
- Am. Hardwoods, Inc., 885 F.2d 621 (9th Cir. 1989) (non‑debtor liabilities cannot be discharged through plan without consent)
- Landsing Diversified Props.‑II v. First Nat’l Bank & Tr. Co. of Tulsa (In re W. Real Estate Fund), 922 F.2d 592 (10th Cir. 1990) (court may approve settlements releasing estate claims)