Wildfire victims’ lawyers aren’t fans of PG&E’s $11B deal with insurers

SAN FRANCISCO -- The committees representing wildfire plaintiffs, the California governor's office and bondholders urged a federal judge Wednesday to hold off on approving the $11 billion settlement the Pacific Gas and Electric Corp. has reached with insurers, arguing the deal is a collusive agreement between the two groups designed to shortchange victims and improperly push through the utility's plan to emerge from bankruptcy.

"This settlement is about leverage," said Nancy Mitchell, who is representing Gov. Gavin Newsom's office.

PG&E agreed in September to settle insurance claims for $11 billion. The deal guarantees insurance carriers are fully paid in cash and requires them to vote for the utility's reorganization plan.

PG&E attorney Stephen Karotkin argued the settlement represents "major progress in these cases." He said the agreement settles more than $20 billion of insurance claims at a "substantial discount."

"We think this is a very, very, very reasonable and good deal," he said. "We don't want to take the risk that this thing blows up."

U.S. Bankruptcy Judge Dennis J. Montali took the issue under submission.

If wildfire victims take the money provided by the settlement, they then forfeit the right to pursue higher damages from PG&E through trial or mediation, according to Robert A. Julian, who is representing the victims. He called it a "one-sided" and "compelled" third-party release of liability.

"You don't want a victim signing early in the case a release saying he's been made whole since you don't know until the end of the case if he's been made whole," Julian said.

Responding to Montali's comment that "hard decisions are still decisions," Julian also emphasized most wildfire victims don't have a real choice in the matter.

"They do not have a voluntary choice when they need money for the hospital or to get into a real home instead of a trailer with holes in the floor on a parcel with burnt trees all around them," he said.

Montali indicated it would be risky to violate the "bird in hand rule" and let "an $11 billion bird fly away and maybe have a $20 billion bird replacement."

Matthew A. Feldman, representing the insurers, argued there is no time to wait to see if victims get paid in full since litigating their claims may take years to work through the courts. He said, "That's not how bankruptcy works."

Karotkin agreed, saying victims can choose not to opt into the settlement. In re: PG&E Corp., 19-30088 (N.D. Cal., filed Jan. 31, 2019).

Supporting the committee representing wildfire victims, Mitchell argued the governor's office is concerned about a provision in the settlement requiring the committee representing insurers to vote for PG&E's plan to emerge from bankruptcy.

"The debtors have moved through the plan process with one goal, to get an equity sponsored plan done," she said, accusing PG&E of refusing to act as a responsible fiduciary.

Mitchell also argued the Newsom team supports holding off on approving the settlement since it locks up money that should be used for PG&E to meet the requirements for it to qualify in AB 1054's multi-billion dollar wildfire mitigation fund.

"It's just not clear they have enough money," she said.

Avid Kareshi, representing the bondholders, similarly argued the settlement is to build leverage to "push through an equity sponsored plan." He proposed that Montali should lift the provision in the settlement requiring insurers to vote in favor of PG&E's plan of reorganization.

"It can't be the case that $11 billion is good enough only if it comes from PG&E but not from a creditor's plan," he said.

Montali agreed at the end of the hearing that "locking up votes doesn't seem right" and "it doesn't seem democratic."

"That's how you get to deals in Chapter 11," Feldman responded.