Case Information
*1 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
AD HOC COMMITTEE OF HOLDERS OF Cаse No. 20-cv-01493-HSG TRADE CLAIMS, ORDER DENYING MOTION FOR Appellant, LEAVE TO APPEAL v. Re: Dkt. No. 3 PG&E CORPORATION, et al.,
Appellees. [1]
Order Regarding Postpetition Interest (BR Dkt. No. 5669) 28 U.S.C. Section 158(a)(3) and Federal Rule of Bankruptcy Procedure 8004(a), the Interlocutory Claims (“Trade Committee”) for leave to appeal (Dkt. No. 3-2, “Motion for Leave”), pursuant to Order”) and Memorandum Decision entered on December 30, 2019 (BR Dkt. No. 5226) (“PPI Memorandum”) (together “PPI Memorandum and Order”). Having carefully considered the entered on February 6, 2020 (“PPI Pending before the Court is the motion of the Ad Hoc Committee of Holders of Trade briefs [2] and the PPI Memorandum and Order, the Court DENIES the Motion for Leave.
BACKGROUND
A. The Bankruptcy Filing
On January 29, 2019 (“Petition Date”), PG&E Corporation (“PG&E Corp.”) and its primary operating subsidiary, Pacific Gas and Electric Company (“Utility,” and together with PG&E Corp., “Debtors”), commenced the Chapter 11 сases. This was due to “a confluence of factors resulting from the catastrophic and tragic wildfires that occurred in Northern California in *2 2017 and 2018, and [the Debtors’] potential liabilities arising therefrom.” See Amended Declaration of Jason P. Wells (BR Dkt. No. 263, “Wells Decl.”) at 3. In addition to liability arising from the wildfires, the Debtors had “approximately $22 billion in outstanding funded debt obligations” under prepetition lending facilities. See [Proposed] Disclosure Statement for Debtors’ and Shareholder Proponents’ Joint Chapter 11 Plan of Reorganization (BR Dkt. No. 5700, “Proposed Disclosure Statement”) at 6.
The timeline of the Debtors’ Chapter 11 cases and confirmаtion of a chapter 11 plan is dictated in part by the terms of Assembly Bill 1054 (“AB 1054”), a California statute that “established a statewide fund that participating utilities may access to pay for liabilities arising in connecti[on] with future wildfires occurring after July 12, 2019 (the ‘Go-Forward Wildfire Fund’).” Proposed Disclosure Statement at 7. Debtor Utility intends to participate in the Go- Forward Wildfire Fund, and in order to do so, “the Utility’s Chapter 11 Case [must be] resolved pursuant to a plan of reorganization or similar document not subject to stay” by June 30, 2020. Id . B. The Debtors’ Plan On September 9, 2019, the Debtors filed the Debtors’ Joint Chapter 11 Plan of Reorganization. BR Dkt. No. 3841. The Debtors have since filed amendеd and revised versions of a chapter 11 plan, with the most recent dated January 31, 2020. BR Dkt. No. 5590 (the “Debtors’ Plan”). Relevant to this dispute, the Debtors’ Plan assumes that the Debtors’ estates are solvent. As a result, holders of allowed “General Unsecured Claims” are to be paid in full in cash on the effective date of the Debtors’ Plan. See id. §§ 4.4(a), 4.21(a). The Debtors’ Plan further provides for payment of postpetition interest accruing from the Petition Date through the effective date “at the Federal Judgment Rate,” which is calculated at 2.59%. Id . § 1.73. General Unsecured Claims are “Unimpaired,” and not permitted to vote on the Debtors’ Plan. Id . §§ 4.4(b), 4.21(b).
C. The Postpetition Interest Dispute
Out of recognition of the need to confirm a chapter 11 plan before the June 30, 2020 deadline under AB 1054, the parties began focusing on plan-related issues that could be litigated prior to the ultimate hearing on confirmation of the Debtors’ Plan. The parties identified one such issue as the dispute over whether any plan must pay postpetition interest at the “Federal Judgment *3 Rate,” as the Debtors proposed, or pursuant to state law, as several creditor groups contended, including the Trade Committee. See, e.g. , Sept. 24, 2019 Hr’g Tr. at 26:8–20; Oct. 23, 2019 Hr’g Tr. at 32:10–14, 33:1–3 (statement by Judge Montali that “I would like to break the confirmation issues into discrete things, likе these, that they are confirmation issues.”). Part of the Bankruptcy Court’s rationale for resolving the issue early was to also address any appeal on postpetition interest at an early stage. Sep. 24, 2019 Hr’g Tr. at 40:6–9 (“If I make a ruling, that’s my job. If my ruling is appealed on an interlocutory basis, that’s an option for the parties and something else to deal with. But we can’t even get there if we don’t start by teeing it up here.”).
On October 31, 2019, the Bankruptcy Court entered an order (BR Dkt. No. 4540, “Scheduling Order”) setting a schedule for addressing “whether the postpetition interest rate applicable to unsecured claims under any chapter 11 рlan of reorganization is the Federal Judgment Rate or some other rate, such as the rate of interest under the applicable contract and/or other applicable state law” (the “PPI Dispute”). The Scheduling Order also contemplated a potential appeal of a decision on the issue: When the court does issue the orders on these questions there are several alternatives. First, any aggrieved party may seek interlocutory review under Fed. R. Bankr. P. 8004. Second, the court on its own or upon request of a party, may certify direct appeal under Fed. R. Bankr. P. 8006, as it did earlier in these cases in AP 19-3003. Finally, the court will be able to consider a request for certification under Fed. R. Bankr. P. 7054(b) of the discrete contested matter posed by the issue presented. Scheduling Order at 6 (emphasis added).
Relying on the Ninth Circuit’s decision in
In re Cardelucci
,
On December 30, 2019, the Bankruptcy Court ruled in the PPI Memorandum that “the Debtors are correct, that Cardelucci controls and that the Federal Interest Rate applies to any Plan.” PPI Memorandum at 2. The Bankruptcy Court, however, did not immediately enter the PPI Order. Instead, the Bankruptcy Court stated that “[b]ecause of the close relationship between the postpetition interest question and the issues presented in the forthcoming Make-Whole dispute, orders disposing of them both at the same time seem[] appropriate and efficient,” and that “[w]hether either or both questions should be certified for direct appeal or [be] treated as final for purposes of Fed. R. Bankr. P. 7054, can be visited later.” Id. at 17.
On January 27, 2020, the Debtors sought approval of a Restructuring Support Agreement entered into with the AHC (“Noteholder RSA”). Under Section 2(a)(i) of the Noteholder RSA, each “Consenting Noteholder” is deemed to “consent to deferral of the entry of a final order on the Bankruptcy Court’s decision on the post-petition interest issues to the entry of the Confirmation Order . . . .” In response, the Trade Committee filed a letter (BR Dkt. No. 5517), requesting that the Bankruptcy Court certify the PPI Memorandum as a final order under Fed. R. Civ. P. 54(b), and for direct appeal to the Ninth Circuit pursuant to 28 U.S.C. § 158(d)(2)(A). The Bankruptcy Court expressed doubt that certification would be proper. On February 4, 2020, the Bankruptcy Court ruled that it could not “just decree that [the PPI Order is] a final order, when it isn’t a final order. But it’s clearly an interlocutory order .” Feb. 4, 2020 Hr’g Tr. at 48:20–22, 50:6–8 (emphasis added). The Bankruptcy Court noted that the purpose of the PPI Memorandum was to provide guidance for a сonfirmable plan and that, once a confirmation order was entered, all parties would have the right to appeal. See Feb. 4, 2020 Hr’g Tr. at 49:18–21.
On February 6, 2020, the Bankruptcy Court entered the PPI Order. In the PPI Order, the Bankruptcy Court again “conclude[d] that the Debtors are correct, that In re Cardelucci , 285 F.3d 1231 (9th Cir. 2002) controls and that the Federal Interest Rate applies to the postpetition treatment of unsecured creditors under any Chapter 11 Plan of Reorganization proposed by *5 Debtors.” PPI Order at 2. In the PPI Order, the Bankruptcy Court left “the question of dealing with an interlocutory order for another court if there is an appeal.” Id.
LEGAL STANDARD
A determination of whеther an order is final or interlocutory is jurisdictional and thus can
be raised sua sponte and reviewed de novo by an appellate court.
See In re Bonham
, 229 F.3d
750, 760–61 (9th Cir. 2000);
In re TV, LLC
, Nos. CC–11–1263–HKiMk, CC–11–1264–HKiMk,
11–
the rights of individual parties or the ultimate outcome of the case that final decisions as to them
should be appealable as of right.’”
In re Technical Knockout Graphics, Inc.
,
Under this “pragmatic approach” to finality, a party may appeal an order as of right where
the order: “1) resolves and seriously affects substantive rights and 2) finally determines the
*6
discrete issue to which it is addressed.”
In re Frontier Properties, Inc.
,
As the Supreme Court recently nоted, “[c]orrect delineation of the dimensions of a
bankruptcy ‘proceeding’ is a matter of considerable importance’” because “[a]n erroneous
identification of an interlocutory order as a final decision may yield an appeal over which the
appellate forum lacks jurisdiction.”
Ritzen
,
and (3) an immediate appeal could materially advance the ultimate termination of the litigation.
See In re Cement Antitrust Litig. (MDL No. 296)
,
First, a question of law is “controlling” if its resolution on appeal could “materially affect
*7
the outcome of the litigation in district court.”
Cement
,
of the litigation.
See In re Travers
,
Under Supreme Court precedent, an order entered in connection with the process оf
*8
negotiating and obtaining approval of a plan becomes a final and appealable order only when (or
if) a bankruptcy court enters a confirmation order fixing the rights and obligation of the parties. In
Bullard
, the Supreme Court held that a bankruptcy court’s order rejecting a proposed plan was not
final because it did not conclusively resolve the relevant “proceeding” within the bankruptcy case.
Put differently, the Supreme Court has recognized three confirmation scenarios: (1) plan confirmation, (2) confirmation denial and case dismissal, and (3) denial of confirmation with leave to amend. Id . at 1692-93. The first two scenarios provide measures of finality, and fix certain rights and legal obligations, whereas denial of confirmation with leave to amend “changes little.” Id . at 1693. The Supreme Court also rejected the argument that an order denying confirmation was final because it foreclosed the possibility of confirmation of the specific plan at issue. Id. (“An order denying confirmation does rule out the specific arrangement of relief embodied in a particular plan. But that alone does not make the denial final any more than, say, a car buyer’s declining to pay the sticker price is viewed as a ‘final’ purchasing decision by either the buyer or seller. ‘It ain’t over till it’s over.’”).
And it is not over for the Trade Committee. The Trade Committee asserts that “the PPI
Order is not like an ordеr denying summary judgment or confirmation in that it does not
contemplate any further proceedings on the topic to which it is addressed.” Reply at 5. But that is
not accurate. The issue is not whether the Trade Committee will have “further proceedings on the
topic;” rather, the issue is whether the Trade Committee will have further proceedings on the
confirmation of the Debtors’ (current or future) Plan. The Plan is highly likely to be amended—
*9
possibly materially—several times before confirmation, and will not be “over” until the
confirmation order is entered.
See In re 405 N. Bedford Dr. Corp.
,
The fact that the PPI Memorandum and Order has some connection to the confirmation of
the Plan does not render it a final decision. That is precisely why the Ninth Circuit deems, for
example, orders concerning disclosure statements to be interlocutory.
See Everett v. Perez (In re
Perez)
,
interlocutory order, and the Court may only entertain an appeal if it grants leave. 28 U.S.C. §
158(a), Fed. R. Bankr. P. 8002, 8004(a)(2)(b). Leave to appeal an interlocutory order of a
bankruptcy court is appropriate where: (1) there is a controlling question of law, (2) as to which a
substantial ground for a difference of opinion exists, and (3) an immediate appeal could materially
advance the ultimate termination of the litigation.
Cement
,
*10 i. Controlling Question of Law 1
In the Ninth Circuit, “for a question to be ‘controlling’ [it must be shown] that resolution 2
of the issue on appeal could materially affect the outcome of litigation.” Id. (citation omitted). In 3
the Trade Committee’s view, this appeal involves a “controlling question of law” because it may 4
open the door to the exercise of voting and other rights under Section 1129 at the confirmation 5
hearing. Mot. at 13. Ninth Circuit precedent is clear that the focus of the “controlling question of 6
law” inquiry must be the connection that the interlocutory appeal has to the underlying case, not 7
whether the resolution of the question on appeal will resolve the portion of the case implicated by 8
the appeal.
See Cement
,
9 collateral to the merits of [the] lawsuit,” it is not controlling).
10
According to the Trade Committee, its members hold $308 million in trade claims (Mot. at 11 1, n. 1), and seek payment of approximately $34 million in postpetition interest. While that sum
is not small, the Plan addresses over $50 billion in liabilities, including more than $2 billion in trade payables. See Debtors’ Opp. at 12. The issue regarding the appropriate rate of postpetition interest to be paid on the claims of members of the Trade Committee is not so critical that its determination now will have a material impact on the confirmation proceedings. In fact, the Debtors are on record that “if we lose . . . , we will amend the plan to unimpair [the affected creditors]” by paying the postpetition interest rate to which those creditors are entitled. AHC Opp. at 12 (quoting Sept. 24, 2019 Hr’g Tr. at 28:13-15).
The Trade Committee has not shown that an appeal now, rather than (potentially) later, would materially affect plan confirmation beyond making conclusory statements such as “[i]f holders of General Unsecured Claims are entitled to postpetition interest consistent with state law, rather than limited to the Federal Judgment Rate, then they would in fact be impaired by the Debtors’ Plan because the Debtors’ Plan will be depriving holders of General Unsecured Claims of their ‘legal, equitable, and contractual rights’ to postpetition interest at potentially higher rates.” *11 Mot. at 13. Under these circumstances, the issue on appeal is not a controlling question of law.
ii. Substantial Grounds for a Difference of Opinion
Even if the issue is a “contrоlling question of law,” the Trade Committee does not show
substantial grounds for a difference of opinion. The true center of the dispute is whether the Ninth
Circuit’s decision in
Cardelucci
is controlling and dispositive on the issue. While “courts must
examine to what extent the controlling law is unclear,” the Court need not certify an appeal if the
law of the circuit supports the Bankruptcy Court’s ruling, even though there may be a difference
of opinion between the circuits on the question at issue.
See Couch
,
payable under the Plan. PPI Order at 2; PPI Memorandum at 2. This Court agrees. In
Cardelucci
, the Ninth Circuit framed the issue as “present[ing] the narrow but important issue of
whether such post-petition interest is to be calculated using the federal judgment interest rate or is
determined by the parties’ contract or state law.”
The Trade Committee attempts to distinguish Cardelucci by contending that the plan in that case involved impaired claims, while the Debtors’ Plan here proposes to leave general unsecured claims unimpaired, such that Section 726(a)(5) of the Bankruptcy Code—the section cited in Cardelucci to derive the “legal rate” for postpetition interest—is inapplicable. Mot. at 15- *12 16. The Trade Committee also contends that “ Cardelucci is substantially narrower than the interpretаtion given to it by the Bankruptcy Court.” Reply at 11.
The Trade Committee’s contention that the Ninth Circuit’s decision in
Cardelucci
is not
controlling authority—and only applicable to a narrow set of facts—is unavailing. To the extent
that the Trade Committee believes that the Ninth Circuit never intended its ruling to apply to
unimpaired claims,
Cardelucci
certainly does not say that. While the Ninth Circuit pinpointed a
“narrow but important issue,” it did not narrow the application of its holding. The “narrow but
important issue”
Cardelucci
resolved is what “legal rate” applies to postpetition interest in a
solvent debtor case.
Id
. at 1234 (“Where a debtor in bankruptcy is
solvent
, an
unsecured creditor
is entitled to ‘payment of interest at
the legal rate
from the date of the filing of the petition’ prior
to any distribution of remaining assets to the debtor.”) (emphasis added) (citation omitted). That
is precisely the issue resolved in the PPI Memorandum and Order.
b. The Appeal Does Not Require Resolution of Conflicting Authority
Because the Ninth Circuit’s decision in
Cardelucci
is controlling and clear, this appeal
does not require the resolution of conflicting Ninth Circuit authority.
Couch
,
However, “[c]reditors’ entitlements in bankruptcy arise in the first instance from the
*13
underlying substantive law creating the debtor’s obligation, subject to any qualifying or contrary
provisions of the Bankruptcy Code.”
Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co.
,
Section 502(b)(2) of the Bankruptcy Code disallows unsecured claims for postpetition
interest. And so ordinarily, holders of unsecured claims (like members of the Trade Committee)
have no right under the Bankruptcy Code to include such interest as part of their allowed claims.
However, because the Dеbtors are presumed to be solvent,
Cardelucci
directs that the Debtors pay
postpetition interest on allowed unsecured claims (at the “Federal Judgment Rate”). 285 F.3d at
1234. And like the Plan here, the plan in
Cardelucci
“provided for payment in full” of the
unsecured claims at issue by using the “Federal Judgment Rate.”
Id
. at 1233. on unsecured claims in a solvent debtor case need not accrue at the Federal Judgment Rate.” Mot.
Cardelucci
at 18. However, because the Ninth Circuit has directly decided the issue in , the cited
The Trade Committee also contends that other circuits “have held that postpetition interest
out-of-circuit authority does not give rise to a substаntial ground for difference of opinion
justifying an interlocutory appeal.
Couch
,
iii. Materially Advance the Chapter 11 Cases
No party truly disputes that, if the Trade Committee prevails on its appeal, the Debtors’
Plan in its current form will be unconfirmable. Yet, no party can know whether the Plan is
confirmable until
after
the confirmation hearing. Far from materially impacting the course оf plan
confirmation, allowing the present appeal to go forward on discrete issues that are only
components of the Plan as proposed—and that have yet to be ruled upon—could create procedural
chaos. An immediate, interlocutory appeal raises the specter of piecemeal appeals, which will not
materially advance the Chapter 11 cases.
See United States v. Woodbury
,
rather than after confirmation, could provide clarity as to potential additional liabilities. Reply at
2. That may be. But the true “litigation” here is the plan confirmation process, of which the
postpetition interest issue is just one piece of the puzzle.
See Piper Jaffray & Co. v. Mktg. Grp.,
USA, Inc.
, No. 06-CV-2478H,
Trade Committee (and numerous other parties) to raise potential confirmation issues on appeal is either on the horizon, or the Plan as proposed will be rejected and this appeal will become unnecessary. There is no judicial economy in allowing the appeal to move forward now.
In a bankruptcy case this massive and complex, there inevitably will be a long list of other post-confirmation issues that will require the Court’s review at the appropriate time. Many of these issues will be presented to the Bankruptcy Court at the confirmation hearing, at which time the Trade Committee can object, and thereafter file its appeal as of right to a final order confirming the Plan, should one be entered.
CONCLUSION The PPI Memorandum and Order are not final, and the Trade Committee’s request for leave to appeal is denied. IT IS SO ORDERED.
Dated: ______________________________________ HAYWOOD S. GILLIAM, JR. United States District Judge
Notes
[1] “BR Dkt. No.” references are to the Bankruptcy Court’s docket, Case No. 19-30088 (DM) (Bankr. N.D. Cal.). “Dkt. No.” references are to this Court’s docket.
[2] Including Dkt. No. 31 (“AHC Opp.”); Dkt. No. 32 (“Debtors’ Opp.”); Dkt. No. 48 (“Reply”).
[3] Pursuant to the Scheduling Order, the Bankruptcy Court scheduled the dispute regarding the 28 make-wholе issue on a similar schedule as the PPI Dispute. Scheduling Order ¶ 7
[4] Similarly, in
Ritzen
, the Supreme Court recently held that “the issue of appealability” should “be
28
determined for the entire category to which a claim belongs.”
[5] The Debtors and the AHC incorrectly assert that the Bankruptcy Court’s decision not to certify
26
the PPI Memorandum and Order as a final order under Rule 54(b) has some impact on this Court’s
ability to consider this appeal of the PPI Memorandum and Order. Debtors’ Opp. at 9, n.6; AHC
27
Opp. at 10–11. Rule 54(b) has no bearing on whether the PPI Memorandum and Order is a final
order appealable as of right under Section 158(a) because that section already рrovides for appeals
28
of final orders as to discrete “proceedings,” not just “cases.”
See Ritzen
,
[6] The Debtors calculate this by noting that “[t]he Trade Committee seeks interest at the state 27 statutory rate of 10%, which is 7.41% higher than the Federal Judgment Rate of 2.59% to be paid under the Plan. Eighteen months of interest on $308 million at 7.41% is roughly $34.2 million.” 28 Debtors’ Opp. at 12, n. 7.
[7] The Trade Committee’s contention that
In re Sylmar Plaza, L.P.
,
[8] Even were this not the case, the cases cited by the Trade Committee are inapposite or
22
distinguishable. For example, in
In re Ultra Petroleum Corp.
,