Relevant Documents:Amended Plan /
Blackline
Today’s eighth and final day of the PG&E confirmation hearing before U.S. Bankruptcy Judge Dennis Montali focused on objections by the official committee of unsecured creditors and executory contract counterparties to the discharge and injunction provisions of the debtors’ proposed plan - an issue that was declared “agreed in principle” on the
sixth day of the hearing. Counsel for the plan proponents also presented their closing arguments in support of confirmation, which largely followed their arguments in the papers and on days one through seven.
At the conclusion of today’s hearing, Stephen Karotkin of Weil Gotshal, counsel for the debtors, called the proposed plan, a slightly modified version of which was filed last night, a “remarkable achievement” that “plainly satisfies the requirements for confirmation” under the Bankruptcy Code. None of the objectors, Karotkin said, presented “cognizable evidence” to support their objections, “much less to defeat confirmation and the will of” the fire victims. “Confirmation is the only path here,” Karotkin concluded, and “we’ve met our burden.”
Reorg’s coverage of days one through seven of the hearing can be reviewed
here,
here,
here,
here,
here,
here and
here.
According to Karotkin, after the latest amendments to the plan seven open objections remain, including two discussed today: the discharge and injunction issues raised by the UCC and contract counterparties and the securities plaintiffs’ objection to the formula for calculating their distributions under the plan. Not discussed today was the most pressing unresolved issue: the official committee of tort claimants’ demand for an equitable registration rights agreement allowing the trust to sell reorganized PG&E shares on the same terms as other shareholders. According to Karotkin, that issue remains in mediation before former U.S. Bankruptcy Judge Randall Newsome.
Karotkin argued that the other four objections - the assumption issues raised by governmental entities, one secured creditors’ objection to receiving the federal judgment rate of interest on its secured claim, the fire victims’ complaints regarding the TCC settlement and the California Franchise Tax Board’s request for additional protective language in the plan - lack merit and should be overruled. With respect to victims, Karotkin told Judge Montali that the debtors “deeply regret all that happened” but “that is a reason to confirm the plan rather than the alternative,” which would result in a “substantial delay of distributions” to victims.
Earlier in the hearing, the UCC and objecting contract counterparties - which include power purchase agreement parties, consultants and municipalities - argued that the plan must preserve their ability to seek damages from the reorganized debtors post-confirmation should PG&E actions or omissions result in liability for them, even if the acts or omissions occurred prior to the bankruptcy. Gregory Bray of Milbank, counsel for the UCC, accused the debtors of taking an “Orwellian position” - that they can assume executory contracts while discharging the counterparties’ contribution and indemnification rights. According to Bray, assumption of a contract by a debtor does not itself discharge all potential claims against the debtor under the contract.
Judge Montali, however, suggested that if counterparties “reasonably contemplated” that they may have claims against the debtors relating to pre-bankruptcy conditions, they should have filed proofs of claim or noted the potential claims in an objection to assumption and demanded cure during the bankruptcy case. If they failed to do so, the judge said, then those unasserted claims should be discharged - whether the underlying contracts were assumed or not. If they did file claims, the judge reasoned, then those claims should be cured prior to assumption, or if the contract was not assumed, be subject to the claims allowance process and, if allowed, satisfied by distributions under the plan.
With respect to unknown prepetition conditions that could give rise to unknown claims for the counterparties, the judge offered that if asked, he would find that such claims are not covered by the plan discharge provisions or section 1141.
Karotkin argued on behalf of the debtors that the court cannot decide which counterparty contribution and indemnification claims should survive “in a vacuum” at the confirmation hearing. Instead, Karotkin offered, the claims must be considered as they arise in the future, considering the particular facts on a case-by-case basis. The court should not grant counterparties a “blanket ruling” carving categories of indemnification and contribution rights from the discharge at this time, Karotkin concluded.
After argument on the UCC objection, James Johnston of Jones Day, separately arguing for the shareholder proponents, responded to the objection of the New Mexico Public Employees Retirement Association, or PERA, to the formula for calculation of distributions on rescission damage claims under the plan. As an initial matter, Johnston called PERA’s claim “inflated” and “largely, if not entirely bogus,” and noted that PERA was the only securities rescission claimant that objected to the plan.
Further, Johnston argued, the debtors’ use of the closing stock price on Oct. 12, 2017, to determine “sharing between shareholders and fraud claims” makes sense because that was the date PG&E definitively disclosed “what everyone already knew” - that it could be held responsible for wildfire damages. PERA’s theory of “nine separate frauds” on nine different disclosure dates after October 2017 is “absurd,” Johnston said, because “federal securities laws do not presume that every dollar of stock price decline is attributable” to an initial nondisclosure. Johnston labeled PERA’s arguments “intellectually bankrupt” and suggested that the securities laws do not provide “investor insurance.”
Judge Montali, however, asked Johnston how the October 2017 date would apply to an investor that bought stock after that point. The judge suggested that rather than using a “homemade” formula to allocate the harm from the decline in PG&E stock equally to defrauded investors and those who continued to hold the stock, the debtors should “kick the can down the road.” Johnston responded that delaying approval of the rescission claim distribution formula could affect the debtors’ equity raise, to which the judge tersely responded, “Whose fault is that?” Judge Montali pointed out that the debtors could have filed a motion to estimate the already well-known securities fraud claims on the first day of the case and avoided the issue entirely. The judge expressed his hope that this issue could also be successfully mediated by Judge Newsome.