PG&E’s bankruptcy filing puts pressure on wildfire victims who have filed lawsuits

Wildfire victims arguing Pacific Gas & Electric Corp. is responsible for damages from the state's most destructive blazes over the last two years will have to get in line with other creditors following the utility's parent organization announcing it would file for bankruptcy by the end of the month.

Plaintiffs run the risk of getting pennies on the dollar if they choose to litigate their claims instead of settling, further complicating a legal saga over massive liability lawsuits against the utility across multiple counties, according to legal observers.

"Say the court agrees [with plaintiffs] and gives a billion-dollar verdict," said bankruptcy attorney David Kupetz of SulmeyerKupetz APC. "We still don't know how their claims will be treated in bankruptcy court."

The San Francisco-based company said it would file under Chapter 11 of the U.S. bankruptcy code by Jan. 29, according to a filing with the U.S. Securities and Exchange Commission.

Chapter 11 reorganization is the "only viable option to address the Company's responsibilities to its stakeholders," the statement read.

"We believe a court-supervised process under Chapter 11 will best enable PG&E to resolve its potential liabilities in an orderly, fair and expeditious fashion," PG&E Corp. interim CEO John Simon, who had been the utility's executive vice president and legal counsel, said in a statement.

While the court must determine classes of creditors, plaintiffs seeking damages for wildfire liability might be the last in line considering they most likely would be classified under "unsecured claims," according to Kupetz.

But plaintiffs' attorneys may argue "they shouldn't be treated any less favorably" than other creditors considering the public interest nature of the case, he said.

Bankruptcy attorney Robert Marticello of Smiley Wang-Ekvall said the move could be a play to leverage PG&E's significant debt because it signals to the utility's many creditors they should base decisions on what they are likely to receive factoring in a finite amount of money as opposed to what they could potentially get in a court verdict.

Morgan Stanley analysts estimated total damages from the 2017 and 2018 wildfires to be $9 billion after settlements, tax and insurance proceeds.

Pacific Gas & Electric Co. filed for bankruptcy in 2001 after arguing state lawmakers and regulators had not properly addressed California's energy crisis. It started proceedings more than $12 billion in debt, which it attributed to the soaring cost of wholesale electricity.

The filing shifted decision-making from the California Public Utilities Commission to a federal bankruptcy court in San Francisco. The utility emerged from bankruptcy three years later after distributing $10.2 billion to hundreds of creditors.

"I think it's a similar ploy, but the difference is that the creditors in 2001 was big business whereas creditors today are poor homeowners," said state Sen. Jerry Hill, D-San Mateo. "Hopefully, insurance companies will pick up a lot of costs."

In addition to getting a single forum to address debt, PG&E will be granted an automatic stay of all litigation once it files for bankruptcy.

The stay on proceedings against PG&E, particularly for cases consolidated in San Francisco County Superior Court for the 2017 wildfires, might pressure plaintiffs' attorneys into reassessing settling the cases since any verdict would be subject to approval of the bankruptcy court, Kupetz said.

"Maybe people get realistic and sit down to choose not to spend millions of dollars on the litigation itself," said Kupetz. "Litigation of that scope, even if plaintiffs' attorneys are doing on it on a contingency basis, is millions of dollars."

The bankruptcy court will "almost undoubtedly alter the [trial] schedule at minimum," Kupetz added, noting it has the option to consolidate all claims against PG&E in a single forum, which would remove the North Bay Fire cases from San Francisco County Superior Court.

Plaintiffs' attorneys would have the opportunity to file a motion for relief or stay of proceedings before the matter is decided.

"They could argue in the interest of judicial economy and efficiency, we should be allowed to go forward and conduct this trial where the court is familiar with it," Kupetz said, adding relief may be granted in light of trial already being scheduled for June 2019.