BARBARA ZELMER AND ROBERT ZELMER’S MOTION FOR RELIEF FROM THE AUTOMATIC 

STAY AND ABSTENTION PURSUANT TO 28 U.S.C. § 1334(C)(1); MEMORANDUM OF 

POINTS AND AUTHORITIES IN SUPPORT

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Manuel Corrales, Jr. SBN 117647

ATTORNEY AT LAW

17140 Bernardo Center Drive, Suite 358

San Diego, CA 92128

Tel: (858) 521-0634/Fax: (858) 521-0633

Email: mannycorrales@yahoo.com

Attorney for Creditors BARBARA JEAN ZELMER 

and ROBERT THOMAS ZELMER

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

In Re

PG&E CORPORATION

and

PACIFIC GAS AND ELECTRIC 

COMPANY,

 Debtors.

Bankruptcy Cases

19-30088-DM (Lead Case)

19-30089-DM

Chapter 11

(Jointly Administered)

BARBARA ZELMER AND ROBERT 

ZELMER’S MOTION FOR RELIEF FROM 

THE AUTOMATIC STAY AND 

ABSTENTION PURSUANT TO 28 

U.S.C. § 1334(C)(1); MEMORANDUM 

OF POINTS AND AUTHORITIES IN 

SUPPORT

Date: June 25, 2019

Time: 9:30 a.m. (PT)

Ctrm: Hon. Dennis Montali 

450 Golden Gate Avenue 

16th Floor, Courtroom 17 

San Francisco, CA 94102

o Affects PG&E Corporation

o Affects Pacific Gas and 

Electric Corporation

Ä Affects both Debtors

**All papers shall be filed in 

the Lead Case No. 19-30088 DM

MOTION

BARBARA ZELMER and ROBERT ZELMER (“the Zelmers”) creditors

of the above-named debtor, move for an order:

1. Terminating, annulling, modifying, lifting, or 

conditioning the automatic stay of 11 U.S.C §362(a) to allow 

PG&E CORPORATION and PACIFIC GAS & ELECTRIC COMPANY 

(collectively “PG&E”) and the Zelmers to complete an appeal of a 

stipulated judgment the parties entered into in the state court 

action, Zelmer v. PG&E, BUTTE FIRE CASES, Case No. JCCP 4853, on 

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BARBARA ZELMER AND ROBERT ZELMER’S MOTION FOR RELIEF FROM THE AUTOMATIC 

STAY AND ABSTENTION PURSUANT TO 28 U.S.C. § 1334(C)(1); MEMORANDUM OF 

POINTS AND AUTHORITIES IN SUPPORT

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September 4, 2018, in connection with the settlement of the 

Zelmers’ claims against PG&E. If PG&E prevails, it is not 

obligated to pay the 2nd part of the settlement. If PG&E loses 

on the appeal, the payment of the 2nd part of the settlement will 

be paid with insurance proceeds.

2. Abstaining pursuant to 28 U.S.C. § 1334(c)(1); 

3. Providing that the 14-day stay prescribed by Federal 

Bankruptcy Rule 4001(a)(3) shall not apply to the Court’s order 

issued pursuant to this motion; and 

4. For such other and further relief as this Court deems 

just and proper pursuant to this motion.

I.

MEMORANDUM OF POINTS AND AUTHORITIES

The principle issues to be decided by this Motion are as 

follows:

Whether this Court should lift the automatic stay to allow

PG&E and the Zelmers to complete the appeal of the stipulated 

judgment they entered into for settlement purposes, and whether 

potential payment of the settlement with insurance proceeds 

warrants lifting the stay.

Whether the Court should abstain and permit the appeal to 

continue in the State Court of Appeal. 

II.

STATEMENT OF FACTS

On September 9, 2015, an electrical power line constructed, 

owned, operated, managed and maintained by PG&E CORPORATION and 

PACIFIC GAS AND ELECTRIC COMPANY (collectively “PG&E”), came in 

contact with adjacent native vegetation that had not been 

properly trimmed and maintained in violation of fire safety 

practices. As a result, an electrical arc ignited a fire, known 

as the Butte Fire, that spread and burned over 70,000 acres, 

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BARBARA ZELMER AND ROBERT ZELMER’S MOTION FOR RELIEF FROM THE AUTOMATIC 

STAY AND ABSTENTION PURSUANT TO 28 U.S.C. § 1334(C)(1); MEMORANDUM OF 

POINTS AND AUTHORITIES IN SUPPORT

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destroyed over 570 homes, 368 buildings, killed two people, 

injured others, and damaged about 44 structures. The fire was 

not fully contained until October 1, 2015. (Decl. Corrales, 

para. 2).

The Zelmers are the owners of property located at 8749 

Maranatha Lane, San Andreas, California 95246, and were not 

insured at the time of the fire. Their home and all of its 

contents were destroyed by the Butte Fire. On December 4, 2017, 

the Zelmers filed suit in the Sacramento County Superior Court 

in the Butte Fire Coordinated Proceeding, styled Barbara Jean 

Zelmer and Robert Thomas Zelmer v. PG&E, Case No. CGC-17-561107, 

and incorporated the Master Complaint therein (Butte Fire Cases, 

No. JCCP 4853, Hon. Allen H. Sumner, Dept. 42). The Zelmers sued 

PG&E for, inter alia, negligence, trespass, and inverse 

condemnation. (Decl. Corrales, para. 3).

The Zelmers sought damages for rebuilding their home, for 

personal property loss, tree loss, landscaping, erosion, lost 

wages, evacuation costs, alternative living expenses, cost of 

cleaning and repair of the property due to smoke, soot and ash 

damage, and damage to other structures. They also sought 

compensation for mental anguish, annoyance, inconvenience, 

disturbance, and loss of the quiet enjoyment of their property 

stemming from the damage caused by the fire. (Decl. Corrales, 

para. 4).

During the course of litigation, Defendants PG&E disclosed 

that it had liability insurance that covered the Zelmers’ 

claims. Although PG&E claims its carrier has paid out the 

entirety of its policy, PG&E remains an additional insured under 

two policies from its contractors who were supposed to maintain 

proper vegetation control around the electrical line that 

sparked the fire, with limits in excess of $75 million. The 

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BARBARA ZELMER AND ROBERT ZELMER’S MOTION FOR RELIEF FROM THE AUTOMATIC 

STAY AND ABSTENTION PURSUANT TO 28 U.S.C. § 1334(C)(1); MEMORANDUM OF 

POINTS AND AUTHORITIES IN SUPPORT

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Zelmers only seek recovery of insurance proceeds. (Decl. 

Corrales, para. 5).

On June 22, 2017, the trial court ruled on cross motions on 

whether PG&E is or should be liable for damages caused by the 

fire under the doctrine of inverse condemnation. It concluded 

that PG&E is liable for inverse condemnation, and found: (1) 

PG&E may be held liable for inverse condemnation under 

California law even though it is a privately-owned public 

entity, and (2) the Butte Fire was caused by a public 

improvement as deliberately designed and constructed by PG&E.

(Decl. Corrales, para. 6).

PG&E reached a settlement with the Zelmers whereby PG&E 

would pay the Zelmers a sum certain up front, and then another 

sum, should PG&E succeed in reversing the trial court’s ruling 

on inverse condemnation. To this end, on September 4, 2018, the 

Zelmers and PG&E entered into a stipulated judgment that allowed 

PG&E to appeal that ruling. The trial court approved the 

stipulated judgment on November 29, 2018. If the Bankruptcy 

Court lift the automatic stay and allow PG&E and the Zelmers to 

pursue the appeal of the Stipulated Judgment, and should PG&E 

not prevail on the appeal, the Zelmers would only be looking to 

the available insurance to satisfy the Stipulated Judgment.

(Decl. Corrales, para. 7).

On December 12, 2018, PG&E filed a Notice of Appeal of the 

Stipulated Judgment. (Decl. Corrales, para. 8).

To the Zelmers knowledge, there are no other parties in the 

Butte Fire litigation who have entered into a stipulated 

judgment as the Zelmers and PG&E did. (Decl. Corrales, para. 9).

On January 29, 2019, PG&E filed for Chapter 11 bankruptcy 

protection. (Decl. Corrales, para. 10).

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BARBARA ZELMER AND ROBERT ZELMER’S MOTION FOR RELIEF FROM THE AUTOMATIC 

STAY AND ABSTENTION PURSUANT TO 28 U.S.C. § 1334(C)(1); MEMORANDUM OF 

POINTS AND AUTHORITIES IN SUPPORT

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III.

ARGUMENT

A. GOOD CAUSE EXISTS FOR LIFTING THE AUTOMATIC STAY AS TO THE 

ZELMERS

1. The Zelmers seek only payment of a stipulated judgment 

from liability insurance proceeds.

As stated, the Zelmers and PG&E executed a stipulate 

judgment as part of a settlement of the Zelmers’ claims, which 

allows PG&E to pursue an appeal in state court of a legal issue 

on whether it is liable, as a matter of law, under the doctrine 

of inverse condemnation. PG&E paid the first half of that 

settlement to the Zelmers, and the second payment is contingent 

on whether PG&E prevails on appeal with respect to this issue. 

If it loses, then it must pay the Zelmers under the second part 

of the settlement. However, the Zelmers seek payment of that 

eventuality solely from the insurance proceeds covering this 

claim.

2. The insurance proceeds are not property of the estate.

The Zelmers assert that payment of this potential second 

part of the stipulated judgment from insurance proceeds is not 

part of the debtors’ estate, and therefore this Court should 

lift the automatic stay to allow the prosecution of the appeal 

and eventual, potential payment of the stipulated judgment.

“Property of the estate,” as defined in 11 U.S.C, 

§541(a)(1) includes “all legal or equitable interests of the 

debtor in property as of the commencement of the case.” 

Although the law is clear than an insurance policy issued to the 

debtor will generally constitute “property of the estate” (See

Matter of Edgeworth (5th Cir. 1993) 993 F.2d 51, 55), the 

question of whether the proceeds of an insurance policy are 

property of the estate must be analyzed in light of the facts of 

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BARBARA ZELMER AND ROBERT ZELMER’S MOTION FOR RELIEF FROM THE AUTOMATIC 

STAY AND ABSTENTION PURSUANT TO 28 U.S.C. § 1334(C)(1); MEMORANDUM OF 

POINTS AND AUTHORITIES IN SUPPORT

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each case. In re Scott Wetzel Services, Inc. (1999) 243 B.R. 

802, 804. As explained in Edgeworth, supra:

The overriding question when determining whether insurance 

proceeds are property of the estate is whether the debtor 

would have a right to receive and keep those proceeds when 

the insurer paid on the claim. When a payment by an 

insurer cannot inure to the debtor’s pecuniary benefit, 

then that payment should neither enhance nor decrease the 

bankruptcy estate. In other words, when the debtor has no 

legally cognizable claim to the insurance proceeds, those 

proceeds are not property of the estate. (Emphasis added).

993 F.2d at 55-56. The question is not who owns the policies, 

but who owns the liability proceeds. In re Louisiana World 

Exposition, Inc. (5th Cir. 1987) 832 F.2d 1391, 1399.

With respect to Chapter 11 bankruptcy cases, the Edgeworth

rationale applies. Landry v. Exxon Pipeline Co. (2001) 260 B.R. 

769, 800-801 (insurance proceeds for payment of tort claims 

regarding contamination of Plaintiff’s land as a result of 

leaked contaminants not property of Chapter 11 estate). As 

explained in Landry, supra:

The value of the asset side of an insured debtor’s estate 

is not enriched by the existence of coverage or the payment 

by a liability insurer to a tort victim. The property 

which the debtor or estate holds, or the interests of the 

debtor or estate in property, remains the same; it is the 

underlying claim base for which the estate is liable that 

is affected. Because of the insurance, the estate property 

is liable for a smaller amount of claims (calculated by 

subtracting from the entirety of the claims base the amount 

of insurance coverage). However, to hold that the debtor 

has a legal or equitable interest in property used to pay 

the covered claims because payment of the covered claims by 

some other party with that party’s property may decrease 

the debtor’s overall liability, is utterly backward.

260 B.R. at 787.

PG&E’s property interest in this case is created and 

defined by state law. There is no reason why such interest 

should be analyzed differently simply because PG&E is involved 

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BARBARA ZELMER AND ROBERT ZELMER’S MOTION FOR RELIEF FROM THE AUTOMATIC 

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POINTS AND AUTHORITIES IN SUPPORT

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in a bankruptcy proceeding. Butner v. United States (1979) 440 

U.S. 48, 55. Under state law, PG&E has no interest in the funds 

used by the relevant insurance companies to pay its own 

obligations which are separate and independent of its 

obligations to pay the same debt. Landry supra at 801. 

Accordingly, the proceeds of liability insurance payable to the 

Zelmers, or any other non-debtor parties, are not property of 

PG&E’s bankruptcy estate under 11 U.S.C. §541, or any other 

provision of the Code. Landry, supra.

3. The prosecution of the appeal involves state law 

issues.

Here, it will be more efficient to allow the Zelmers and 

PG&E to prosecute the appeal of the stipulated judgment in the 

state Court of Appeal, rather than in the bankruptcy court. To 

this end, a desire to permit a state action to proceed in a 

state tribunal has been recognized as a proper cause to grant 

relief from the automatic stay. Piombo Corp. v. Castlerock 

Props. (9th Cir. 1986) 781 F.2d 159, 163.

As stated, the bankruptcy court shall grant relief from the 

automatic stay on a showing of “cause.” 11 U.S.C. §362(d). 

“Cause” is determined on a case-by-case basis. In re Tucson 

Estates, Inc. (9th Cir. 1990) 912 F.2d 1162, 1166. In 

determining whether there is “cause” to grant relief, courts 

often consider the factors set out in In re Curtis (Bankr.D.Utah 

1984) 40 B.R. 795 as follows:

(1) Whether the relief will result in a partial or 

complete resolution of the issues;

(2) The lack of any connection with or interference with 

the bankruptcy case;

(3) Whether the foreign proceeding involves the debtor as 

a fiduciary;

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BARBARA ZELMER AND ROBERT ZELMER’S MOTION FOR RELIEF FROM THE AUTOMATIC 

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POINTS AND AUTHORITIES IN SUPPORT

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(4) Whether a specialized tribunal has been established to 

hear the particular cause of action and whether that tribunal

has the expertise to hear such cases;

(5) Whether the debtor’s insurance carrier has assumed 

full financial responsibility for defending the litigation;

(6) Whether the action essentially involves third parties, 

and the debtor functions only as a bailee or conduit for the 

goods or proceeds in question;

(7) Whether the litigation in another forum would 

prejudice the interests of other creditors, the creditor’s 

committee and other interested parties;

(8) Whether the judgment claim arising from the foreign 

action is subject to equitable subordination;

(9) Whether movant’s success in the foreign proceeding 

would result in a judicial lien avoidable by the debtor under 

Section 522(f);

(10) The interests of judicial economy and the expeditious 

and economical determination of litigation for the parties;

(11) Whether the foreign proceedings have progressed to the 

point where the parties are prepared for trial; and

(12) The impact of the stay and the “balance of hurt.”

40 B.R. at 799-800; See also In re Plumberex Specialty Prod., 

Inc. (Bankr.C.D.2004) 311 B.R. 551, 559(adopting the Curtis

factors and recognizing that courts in other circuits have done 

the same).

Applying the pertinent Curtis factors to this case, the 

Court should conclude that good cause exists to lift the stay. 

A “specialized tribunal,” i.e., the California State Court of 

Appeal, has been established to hear the issue to be resolved 

relative to the stipulated judgment and the settlement between 

the Zelmers and PG&E. Moreover, allowing the appeal to proceed 

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POINTS AND AUTHORITIES IN SUPPORT

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would not interfere with the bankruptcy case, since the issue is 

one of law, i.e., is PG&E liable as a matter of law for inverse 

condemnation. If PG&E prevails, its exposure to the Zelmers and 

other creditors would be lessened. On the flip side, should 

PG&E lose the issue on appeal, then the second part of the 

settlement would be paid by liability insurance proceeds, which, 

as shown, are not property of the debtors’ estate.

The interest of judicial economy also supports lifting the 

stay, since the State Court of Appeals, not the Bankruptcy 

Court, would determine the issue of whether PG&E is liable for 

inverse condemnation under California State law.

B. THE BANKRUPTCT COURT SHOULD ABSTAIN FROM DETERMINING THE 

ISSUES ON APPEAL INVOLVING THE APPLICATION OF INVERSE 

CONDEMNATION UNDER STATE LAW

The bankruptcy court has the discretion to leave a personal 

injury action where it is pending and abstain from exercising 

jurisdiction. Hopkins v. Plant Insulation Co. (D.Del.2006) 342 

B.R. 703, 708; 28 U.S.C. §1334(c)(1). The Zelmers assert that 

the Court should exercise its discretion and abstain from 

deciding the appeal of the stipulated judgment entered into 

between the Zelmers and PG&E. 

The factors the Court can consider in determining whether 

to abstain from exercising jurisdiction are set forth in In re 

Tucson Estates, Inc. (9th Cir. 1990) 912 F.2d 1162, 1166-1167, as 

follows:

(1) the effect or lack thereof on the efficient 

administration of the estate if a Court recommends abstention; 

(2) the extent to which state law issues predominate over 

bankruptcy issues; 

(3) the difficulty or unsettled nature of the applicable 

law;

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BARBARA ZELMER AND ROBERT ZELMER’S MOTION FOR RELIEF FROM THE AUTOMATIC 

STAY AND ABSTENTION PURSUANT TO 28 U.S.C. § 1334(C)(1); MEMORANDUM OF 

POINTS AND AUTHORITIES IN SUPPORT

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(4) the presence of a related proceeding commenced in 

state court or other non-bankruptcy court;

(5) the jurisdictional basis, if any, other than 28 U.S.C. 

§1334;

(6) the degree of relatedness or remoteness of the 

proceeding to the main bankruptcy case;

(7) the substance rather than form of an asserted “core” 

proceeding;

(8) the feasibility of severing state law claims from core 

bankruptcy matters to allow judgments to be entered in state 

court with enforcement left to the bankruptcy court; 

(9) the burden of [the bankruptcy court’s] docket;

(10) the likelihood that the commencement of the proceeding 

in bankruptcy court involves forum shopping by one of the 

parties;

(11) the existence of a right to a jury trial; and

(12) the presence in the proceeding of non-debtor parties.

912 F.2d at 1166-1167 (Emphasis added).

Clearly, abstention would promote the efficient 

administration of the estate. Allowing the State Court of 

Appeal to decide the issue of the application of the doctrine of 

inverse condemnation to PG&E would relieve the bankruptcy court 

from deciding this complex state law issue. To this end, factor 

three, the “difficulty or unsettled nature of the applicable 

law” warrants abstention, since the State Court of Appeal is 

more equipped in deciding the application of inverse 

condemnation than the bankruptcy court. All creditors and PG&E 

benefit from a ruling by the State Court of Appeal on this 

issue. If it applies, then the creditors have the benefit of 

the law of the case or a published opinion. If PG&E prevails, 

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BARBARA ZELMER AND ROBERT ZELMER’S MOTION FOR RELIEF FROM THE AUTOMATIC 

STAY AND ABSTENTION PURSUANT TO 28 U.S.C. § 1334(C)(1); MEMORANDUM OF 

POINTS AND AUTHORITIES IN SUPPORT

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then the underling claim base for which the estate is liable is 

reduced, at least as to inverse condemnation.

Since the bankruptcy court’s docket is overburdened with 

the PG&E wild fire matters, abstention is warranted under the 

circumstances. In re Tucson Estates, Inc., supra.

V.

CONCLUSION

For the foregoing reasons, this Court should lift the stay 

and allow the prosecution of the appeal of the stipulated 

judgment in state court, and allow the Zelmers to seek recovery 

of the liability insurance proceeds covering their claims, 

should they be the prevailing party on appeal.

DATED: May 3, 2019

s/ Manuel Corrales, Jr.

Manuel Corrales, Jr., Esq.

Attorney for Creditors

BARBARA ZELMER and ROBERT 

ZELMER

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