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WEIL, GOTSHAL & MANGES LLP

Stephen Karotkin (pro hac vice pending)

(stephen.karotkin@weil.com)

Jessica Liou (pro hac vice pending)

(jessica.liou@weil.com) 

Matthew Goren (pro hac vice pending)

(matthew.goren@weil.com)

767 Fifth Avenue

New York, NY 10153-0119

Tel: 212 310 8000

Fax: 212 310 8007

KELLER & BENVENUTTI LLP

Tobias S. Keller (#151445)

(tkeller@kellerbenvenutti.com)

Jane Kim (#298192)

(jkim@kellerbenvenutti.com)

650 California Street, Suite 1900

San Francisco, CA 94108

Tel: 415 496 6723

Fax: 650 636 9251

Proposed Attorneys for Debtors 

and Debtors in Possession

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

In re:

PG&E CORPORATION,

Debtor.

Tax I.D. No. 94-3234914

Case Nos. 19 - _______ (___)

19 - _______ (___)

Chapter 11

MOTION OF DEBTORS PURSUANT TO 11 

U.S.C. §§ 105(a), 363(b), AND 503(b) AND 

FED. R. BANKR. P. 6003 AND 6004 (I) FOR

INTERIM AND FINAL AUTHORITY TO 

PAY PREPETITION OBLIGATIONS OWED 

TO SHIPPERS, WAREHOUSEMEN, AND 

OTHER LIEN CLAIMANTS, AND 

(II) GRANTING ADMINISTRATIVE 

EXPENSE PRIORITY STATUS FOR 

CLAIMS ARISING FROM GOODS 

DELIVERED TO THE DEBTORS 

POSTPETITION

Date:

Time:

Place:

In re:

PACIFIC GAS AND ELECTRIC 

COMPANY,

Debtor.

Tax I.D. No. 94-0742640

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PG&E Corporation (“PG&E Corp.”) and Pacific Gas and Electric Company (the “Utility”), as 

debtors and debtors in possession (collectively, “PG&E” or the “Debtors”) in the above-captioned 

chapter 11 cases (the “Chapter 11 Cases”), hereby submit this Motion (the “Motion”), pursuant to 

sections 105(a), 363(b), and 503(b) of title 11 of the United States Code (the “Bankruptcy Code”) and 

Rules 6003 and 6004 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), (i) for 

interim and final authority to pay the prepetition claims (the “Lien Claims”) of certain third-party 

shippers, warehousemen, vendors, and other service providers or contractors that may be permitted to 

assert statutory or possessory liens against the Debtors’ property and equipment if the Debtors fail to 

pay the prepetition amounts owed to those parties for their various goods and services (collectively, 

the “Lien Claimants”), and (ii) granting administrative priority status to all undisputed obligations of 

the Debtors owing to third-party vendors and suppliers arising from the postpetition delivery of goods 

ordered prior to the Petition Date (as defined below) and authorizing the Debtors to pay such obligations 

in the ordinary course of business.

A proposed form of order granting the relief requested herein on an interim basis is annexed 

hereto as Exhibit A (the “Proposed Interim Order”). 

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TABLE OF CONTENTS

Page

I. JURISDICTION ...................................................................................................................... 7

II. BACKGROUND ..................................................................................................................... 7

III. THE LIEN CLAIMANTS ....................................................................................................... 7

IV. THE PREPETITION ORDERS............................................................................................. 11

V. BASIS FOR RELIEF REQUESTED .................................................................................... 11

A. Payment of the Lien Claims is Warranted Under Sections 363(b) and 

105(a) of the Bankruptcy Code.................................................................................. 12

B. The Obligations Owed Under the Prepetition Orders Are Administrative 

Priority Claims Under Section 503(b) of the Bankruptcy Code ................................ 15

C. Banks Should Be Authorized to Receive, Process, Honor, and Pay Checks 

Issued and Transfers Requested to Pay the Lien Claims and Obligations 

Owed Under the Prepetition Orders........................................................................... 16

VI. RESERVATION OF RIGHTS .............................................................................................. 17

VII. IMMEDIATE ENTRY OF AN ORDER PURSUANT TO BANKRUPTCY RULE 6003.. 17

VIII. REQUEST FOR BANKRUPTCY RULE 6004 WAIVERS................................................. 17

IX. NOTICE................................................................................................................................. 18

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TABLE OF AUTHORITIES

Cases.............................................................................................................................................Page(s)

In re Adams Apple, Inc.,

829 F.2d 1484 (9th Cir. 1987) .................................................................................................14, 15

In re Anchorage Nautical Tours, Inc.,

145 B.R. 637 (B.A.P. 9th Cir. 1992)..............................................................................................13

In Matter of B & W Enterprises, Inc.,

713 F.2d 534 (9th Cir. 1983) .........................................................................................................14

Berg & Berg Enterprises, LLC v. Boyle,

178 Cal. App. 4th 1020 (2009) ......................................................................................................12

F.D.I.C. v. Castetter,

184 F.3d 1040 (9th Cir. 1999) .......................................................................................................12

In re Chateaugay Corp.,

10 F.3d 944 (2d. Cir. 1993)............................................................................................................16

In re Chateaugay Corp.,

80 B.R. 279 (S.D.N.Y. 1987).........................................................................................................14

Comm. of Asbestos-Related Litigants v. Johns-Manville Corp. (In re Johns-Manville Corp.),

60 B.R. 612 (Bankr. S.D.N.Y. 1986)...............................................................................................6

In re Curry & Sorensen, Inc.,

57 B.R. 824 (B.A.P. 9th Cir. 1986)................................................................................................13

Czyzewski v. Jevic Holding Corp.,

137 S. Ct. 973 (2017).....................................................................................................................13

In re Eagle–Picher Indus., Inc.

124 B.R. 1021 (Bankr. S.D. Ohio 1991)........................................................................................13

In re Financial News Network, Inc.

134 B.R. 732 (Bankr. S.D.N.Y. 1991)...........................................................................................13

Gordon v. Hines (In re Hines),

147 F.3d 1185 (9th Cir. 1998) .......................................................................................................15

In re Gulf Air,

112 B.R. 152 (Bankr. W.D. La. 1989)...........................................................................................14

In re Ionosphere Clubs, Inc.,

98 B.R. 174 (Bankr. S.D.N.Y. 1989).............................................................................................12

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In re Just For Feet, Inc.,

242 B.R. 821 (D. Del. 1999)..........................................................................................................13

Miltenberger v. Logansport, C&S W.R. Co.,

106 U.S. 286 (1882).......................................................................................................................13

In re NewZoom, Inc.,

Case No. 15-31141-HB (Bankr. N.D. Cal. Sept. 11, 2015)...........................................................15

In re NVR L.P.,

147 B.R. 126 (Bankr. E.D. Va. 1992)............................................................................................13

Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.),

147 B.R. 650 (S.D.N.Y. 1992).......................................................................................................12

In re Palau Corp.,

139 B.R. 942 (B.A.P. 9th Cir. 1992)..............................................................................................16

In re Pettit Oil Co.,

No. 13-47285, 2015 WL 6684225 (Bankr. W.D. Wash. Oct. 22, 2015).......................................15

Scouler & Co., LLC v. Schwartz,

No. 11-CV-06377 NC, 2012 WL 1502762 (N.D. Cal. Apr. 23, 2012) .........................................12

In re Structurlite Plastics Corp.,

86 B.R. 922 (Bankr. S.D. Ohio 1988)............................................................................................14

In re Waste Systems Intern., Inc.,

280 B.R. 824 (Bankr. D. Del. 2002)..............................................................................................16

Statutes

11 U.S.C. § 105...................................................................................................................................11

11 U.S.C. § 105(a) ...................................................................................................................... passim

11 U.S.C. § 362(b)(3) .........................................................................................................................10

11 U.S.C. § 363.....................................................................................................................................6

11 U.S.C. § 363(b)........................................................................................................................2, 5, 6

11 U.S.C. § 365...................................................................................................................................17

11 U.S.C. § 503(b)..............................................................................................................5, 11, 12, 15

11 U.S.C. § 503(b)(1)(A)....................................................................................................................16

11 U.S.C. § 546(b)..............................................................................................................................10

11 U.S.C. § 546(b)(1)(A)....................................................................................................................11

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11 U.S.C. § 1107(a) ........................................................................................................................7, 13

11 U.S.C. § 1108...................................................................................................................................7

28 U.S.C. § 157.....................................................................................................................................7

28 U.S.C. § 157(b)................................................................................................................................7

28 U.S.C. § 1334...................................................................................................................................7

28 U.S.C. § 1408...................................................................................................................................7

28 U.S.C. § 1409...................................................................................................................................7

Other Authorities

B.L.R. 5011-1(a)...................................................................................................................................7

Cal. Comm. § 7209 .............................................................................................................................10

Cal. Comm. § 7307 ...............................................................................................................................9

Fed. R. Bankr. P. 2002........................................................................................................................16

Fed. R. Bankr. P. 6003........................................................................................................................17

Fed. R. Bankr. P. 6004........................................................................................................................17

Fed. R. Bankr. P. 6004(a)....................................................................................................................17

Fed. R. Bankr. P. 6004(h) ...................................................................................................................17

Order Referring Bankruptcy Cases and Proceedings to Bankruptcy Judges, 

General Order 24 (N.D. Cal.)...........................................................................................................7

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MEMORANDUM OF POINTS AND AUTHORITIES

I. JURISDICTION

The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334, the 

Order Referring Bankruptcy Cases and Proceedings to Bankruptcy Judges, General Order 24 (N.D. 

Cal.), and Rule 5011-1(a) of the Bankruptcy Local Rules for the United States District Court for the 

Northern District of California (the “Bankruptcy Local Rules”). This is a core proceeding pursuant 

to 28 U.S.C. § 157(b). Venue is proper before the Court pursuant to 28 U.S.C. §§ 1408 and 1409. 

II. BACKGROUND

On the date hereof (the “Petition Date”), the Debtors commenced with the Court voluntary 

cases under chapter 11 of the Bankruptcy Code. The Debtors continue to operate their businesses and 

manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the 

Bankruptcy Code. No trustee, examiner, or statutory committee has been appointed in either of the 

Chapter 11 Cases.

Additional information regarding the circumstances leading to the commencement of the 

Chapter 11 Cases and information regarding the Debtors’ businesses and capital structure is set forth in 

the Declaration of Jason P. Wells, Senior Vice President and Chief Financial Officer of PG&E Corp., 

in support of the Debtors’ chapter 11 petitions and related first day relief, filed contemporaneously 

herewith (the “Wells Declaration”).

III. THE LIEN CLAIMANTS

In the ordinary course of their electricity and natural gas businesses, the Debtors routinely 

transact business with a number of entities that provide goods and services that may be permitted to 

assert statutory or possessory liens against the Debtors’ property and equipment if the Debtors fail to 

pay for those parties’ various goods or services. The Lien Claimants generally fall into the following 

categories: (i) Shippers, (ii) Warehousemen, and (iii) Maintenance and Repairmen (each as defined 

below). Each of these categories of Lien Claimants is discussed in further detail below.

As of the Petition Date, the Debtors estimate that they owe approximately $65,500,000 on 

account of Lien Claims, of which approximately $25,800,000 will come due in the first thirty (30) days 

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of the Chapter 11 Cases.1 A chart outlining the various categories and approximate amounts of the 

Lien Claims that the Debtors are seeking authority to pay pursuant to this Motion on an interim and 

final basis is set forth below:

Categories

Approx. Amount 

Seeking to Pay on 

Interim Basis

Approx. Amount 

Seeking to Pay on 

Final Basis

Shippers $1,800,000 $6,000,000

Warehouseman $4,800,000 $4,800,000

Maintenance and Repairmen $19,200,000 $54,700,000

Total Approx. Lien Claims $25,800,000 $65,500,000

Shippers. In the ordinary course of business, the Debtors purchase natural gas (the “Purchased 

Natural Gas”) from entities operating in all of the major natural gas basins in western North America, 

including basins in western Canada, the Rocky Mountains, and the southwestern United States. 

Although the Debtors own and operate over 6,400 miles of transmission pipelines, these pipelines do 

not connect directly to the Debtors’ natural gas sources. Therefore, it is necessary for the Debtors to 

rely on third-party transportation service providers (the “Shippers”) to transport Purchased Natural 

Gas from their sources to the Debtors’ transmission pipelines so that the Debtors may deliver natural 

gas to their residential, commercial, industrial, and agricultural customers and to fuel the Utility’s gasfired electric generation facilities in northern and central California. The Debtors’ ability to operate in 

the ordinary course, therefore, depends on their ability to take delivery of and transport Purchased 

Natural Gas in a timely fashion. Additionally, the Debtors also rely on Shippers for the transportation 

of piping supplies, valves, replacement parts and other materials, all of which are integral to the day to 

day operations of their business.

 1 Concurrently herewith, the Debtors have filed a separate Motion seeking authority to pay, among 

other things, the prepetition claims of certain entities that are essential to protect the public health and 

safety and maintain the going-concern value of the Debtors’ enterprise and the integrity of the 

Debtors’ operations (the “Operational Integrity Suppliers Motion”). Although the Debtors have 

endeavored to provide accurate figures and calculations herein, there may, in some instances, be 

overlap between the amounts sought to be paid herein and the amounts sought to be paid pursuant to 

the Operational Integrity Suppliers Motion.

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If the Debtors fail to pay their Shippers in a timely manner, the Shippers may seek to assert 

statutory or possessory liens against Purchased Natural Gas or other materials and property that is in 

their possession with respect to any delinquent charges, potentially blocking the Debtors’ access to the 

Purchased Natural Gas and such materials and property that is in transport.2 Further, in many cases, 

only one third-party transportation service provider is capable of transporting Purchased Natural Gas

or other materials from a given source, leaving the Debtors with no choice but to rely on a particular 

Shipper. With millions of dollars’ worth of Purchased Natural Gas and other materials and property 

in transit at any given time, the cost of a disruption to the Debtors’ operations that could be caused by 

the Shippers’ exercising their rights likely far outweighs the prepetition amounts owed to the Shippers. 

The Debtors estimate that the aggregate amount owed to Shippers for services provided during 

the period before the Petition Date is approximately $6,000,000, of which the Debtors are requesting 

authority to pay approximately $1,800,000 on an interim basis.

Warehousemen. In the ordinary course of business, the Debtors store natural gas that they 

purchase in various storage facilities (the “Stored Natural Gas”). The Debtors procure gas storage 

capacity as a tool to ensure reliability, in order to inject and withdraw gas to ensure compliance with 

system requirements, and to balance their position and serve load. Additionally, the Debtors store large 

diameter pipes used for natural gas pipelines, valves, natural gas replacement pipes and fittings, cables, 

wiring, and other parts for the electrical grid, and other property in certain third party warehouse 

facilities. Because the Debtors operate only three storage facilities of their own, all of which have 

 2 For example, section 7307 of California’s Commercial Code provides in pertinent part that:

A carrier has a lien on the goods covered by a bill of lading or on the 

proceeds thereof in its possession for charges after the date of the carrier’s 

receipt of the goods for storage or transportation, including demurrage and 

terminal charges, and for expenses necessary for preservation of the goods 

incident to their transportation or reasonably incurred in their sale 

pursuant to law.

California Code, Commercial Code – COMM § 7307.

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limited capacity, they rely on the services of these third-party storage providers 

(the “Warehousemen”). 

If the Debtors fail to pay their Warehousemen in a timely manner, the Warehousemen may seek 

to assert statutory or possessory liens against the Debtors’ property that is in their possession;

potentially blocking the Debtors’ access to the Stored Natural Gas and other materials that are 

necessary for the business operations.

3

 The Debtors estimate that the aggregate amount owed to 

Warehousemen for services provided during the period before the Petition Date is approximately 

$4,800,000, all of which is estimated to come due during the first 30 days of the Chapter 11 Cases.

Maintenance and Repairmen. Certain of the Lien Claimants provide maintenance and repair 

services on the Debtors’ vast network of production, transmission, and distribution facilities, including 

the Debtors’ generation units and gas facilities (the “Maintenance and Repairmen”). The 

Maintenance and Repairmen, among other things, maintain, repair, refurbish, and replace components 

of the Debtors’ facilities and equipment and provide fuel and parts for the Debtors’ generation units. 

Many of the Maintenance and Repairmen are not under contract to perform future services, but rather 

perform work and related services on an order-by-order basis. If the Debtors become delinquent in 

their payments for such goods provided or services rendered, the Maintenance and Repairmen may 

assert liens, including mechanics’ liens and materialman’s liens, against the Debtors’ property for the 

amounts owed. Additionally, those Maintenance and Repairmen that do have contracts with the 

Debtors may have been granted liens or other interests pursuant to such agreements to secure amounts 

owed to them under their relevant agreements. Pursuant to section 362(b)(3) of the Bankruptcy Code, 

the act of perfecting mechanics’ liens, to the extent consistent with section 546(b) of the Bankruptcy 

Code, is expressly excluded from the automatic stay.4

 The Debtors estimate that the aggregate amount 

 3 See California Code, Commercial Code – COMM § 7209 (“A warehouse has a lien against the 

bailor on the goods covered by a warehouse receipt or storage agreement or on the proceeds thereof 

in its possession for charges for storage or transportation, including demurrage and terminal charges, 

insurance, labor, or other charges, present or future, in relation to the goods, and for expenses 

necessary for preservation of the goods or reasonably incurred in their sale pursuant to law.”)

4 Under section 546(b) of the Bankruptcy Code, a debtor’s lien avoidance powers “are subject to any 

generally applicable law that . . . permits perfection of an interest in property to be effective against 

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owed to Maintenance and Repairmen for goods and services provided during the period before the 

Petition Date is approximately $54,700,000, of which the Debtors are requesting authority to pay 

approximately $19,200,000 on an interim basis.

In addition to having secured claims, if the Debtors are unable to satisfy the Lien Claims as 

requested herein, the Lien Claimants may refuse to provide critical ongoing goods or services to the 

Debtors or may seek to enforce their rights and liens on account of such claims. Accordingly, the 

Debtors seek authority to pay and discharge, on a case-by-case basis, the Lien Claims that the Debtors 

believe have created, or could give rise to, a lien against the Debtors’ property or equipment, regardless 

of whether such Lien Claimants already have actually perfected their interests.

IV. THE PREPETITION ORDERS

In addition to the relief requested with respect to the Lien Claimants, as of the Petition Date, 

the Debtors have certain prepetition purchase orders outstanding with various third-party vendors and 

suppliers (the “Vendors”) for goods ordered by the Debtors that have not yet been delivered by the 

Vendors to the Debtors’ facilities (the “Prepetition Orders”). These Vendors may be concerned that, 

because the Debtors’ obligations under the Prepetition Orders arose prior to the Petition Date, such 

obligations will be treated as general unsecured claims in the Chapter 11 Cases. Accordingly, certain 

Vendors may refuse to provide goods purchased (or may recall shipments thereof) pursuant to the 

Prepetition Orders unless the Debtors issue substitute purchase orders postpetition or obtain an order 

of the Court confirming that all undisputed obligations of the Debtors arising from the postpetition 

delivery of goods subject to Prepetition Orders are afforded administrative expense priority status 

under section 503(b) of the Bankruptcy Code.

V. BASIS FOR RELIEF REQUESTED

To minimize the disruption that the Debtors’ business operations will suffer if prepetition 

obligations owed to Lien Claimants are not paid, the Debtors respectfully requests that the Court 

authorize the Debtors to pay and honor the Lien Claims pursuant to sections 363(b) and 105(a) of the 

Bankruptcy Code. Additionally, the Debtors respectfully request that the Court confirm that all 

 

an entity that acquires rights in such property before the date of perfection.” 11 U.S.C. § 

546(b)(1)(A).

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undisputed obligations of the Debtors arising from the postpetition delivery of goods subject to the 

Prepetition Orders are granted administrative expense priority status pursuant to section 503(b) of the 

Bankruptcy Code and authorize and confirm that the Debtors may satisfy such obligations in the 

ordinary course of business.

A. Payment of the Lien Claims is Warranted Under Sections 363(b) and 105(a) of the 

Bankruptcy Code

Section 363(b) of the Bankruptcy Code provides, in relevant part, that “[t]he [debtor], after 

notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of 

the estate.” 11 U.S.C. § 363(b)(1). Under section 363 of the Bankruptcy Code, a court may authorize 

a debtor to pay certain prepetition claims where a sound business purposes exists for doing so. See In 

re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989). The business judgment rule is 

satisfied where “the directors of a corporation acted on an informed basis, in good faith and in the 

honest belief that the action taken was in the best interests of the company.” See, e.g., Official Comm. 

of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650, 656 

(S.D.N.Y. 1992) (quoting Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985)); see also F.D.I.C. v. 

Castetter, 184 F.3d 1040, 1043 (9th Cir. 1999) (the business judgment rule “requires directors to 

perform their duties in good faith and as an ordinarily prudent person in a like circumstance would”). 

“Where the debtor articulates a reasonable basis for its business decisions (as distinct from a decision 

made arbitrarily or capriciously), courts will generally not entertain objections to the debtor’s conduct.” 

Comm. of Asbestos-Related Litigants v. Johns-Manville Corp. (In re Johns-Manville Corp.), 60 B.R. 

612, 616 (Bankr. S.D.N.Y. 1986). Courts in this District have consistently declined to interfere with 

corporate decisions absent a showing of bad faith, self-interest, or gross negligence, and have upheld 

a board’s decisions as long as such decisions were made in good faith. Scouler & Co., LLC v. Schwartz, 

No. 11-CV-06377 NC, 2012 WL 1502762, at *4 (N.D. Cal. Apr. 23, 2012); Berg & Berg Enterprises, 

LLC v. Boyle, 178 Cal. App. 4th 1020, 1046 (2009).

The Court may also rely on its equitable powers under section 105 of the Bankruptcy Code to 

grant the relief requested in this Motion. Section 105(a) of the Bankruptcy Code empowers the Court 

to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of 

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this title.” 11 U.S.C. § 105(a). Accordingly, the Court may authorize the Debtors to pay the Lien 

Claims because such relief is necessary for the Debtors to carry out their fiduciary duties under sections 

1107(a) of the Bankruptcy Code. Under section 1107(a) of the Bankruptcy Code, “the debtor in 

possession has the same fiduciary duties and liabilities as a Trustee. When the debtor is a corporation, 

corporate officers and directors are considered to be fiduciaries both to the corporate debtor in 

possession and to the creditors.” In re Anchorage Nautical Tours, Inc., 145 B.R. 637, 643 (B.A.P. 9th 

Cir. 1992); see also In re Curry & Sorensen, Inc., 57 B.R. 824, 828 (B.A.P. 9th Cir. 1986) (“[T]he 

debtor’s directors bear essentially the same fiduciary obligation to creditors and shareholders as would 

a trustee for a debtor out of possession.”).

Numerous courts have acknowledged that payment of prepetition obligations, irrespective of 

statutory priorities, may be necessary to realize the objectives of the Bankruptcy Code, such as the 

preservation and enhancement of the value of a debtor’s estate for the benefit of all creditors and other 

stakeholders. See, e.g., Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 985 (2017) (noting that 

courts have approved distributions that are not consistent with ordinary priority rules in instances where 

significant Code-related objectives, such as enabling a successful reorganization, would be served and 

listing examples such as “first-day wage orders that allow payment of employees’ prepetition wages, 

critical vendor orders that allow payment of essential suppliers’ prepetition invoices, and roll-ups that 

allow lenders who continue financing the debtor to be paid first on their prepetition claims”); 

Miltenberger v. Logansport, C&S W.R. Co., 106 U.S. 286, 312 (1882) (payment of pre-receivership 

claim prior to reorganization permitted to prevent “stoppage of the continuance of [crucial] business 

relations”); In re Just For Feet, Inc., 242 B.R. 821, 826 (D. Del. 1999) (allowing payment of prepetition 

claim because debtor could not survive without maintaining customer relationship); In re Financial 

News Network, Inc. 134 B.R. 732, 736 (Bankr. S.D.N.Y. 1991) (payment of prepetition claims allowed 

if “critical to the debtor’s reorganization”); In re NVR L.P., 147 B.R. 126, 128 (Bankr. E.D. Va. 1992) 

(holding that “proponent of the payment must show substantial necessity”); In re Eagle–Picher Indus., 

Inc., 124 B.R. 1021, 1023 (Bankr. S.D. Ohio 1991) (stating that payment must be “necessary to avert 

a serious threat to the chapter 11 process”).

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Although there is a Ninth Circuit decision which fails to recognize the grant of authority given 

by the Bankruptcy Code to elevate certain pre-petition payments over others, that case is easily 

distinguishable from these Chapter 11 Cases and the relief sought herein, as the pre-petition payments 

at issue there were made by the debtor without notice, hearing, or authorization from the Bankruptcy 

Court. In Matter of B & W Enterprises, Inc., 713 F.2d 534, 535 (9th Cir. 1983). Furthermore, although 

the B & W court noted that the “necessity of payment” doctrine was established in railroad 

reorganization cases, id. at 535, numerous courts have extended the doctrine beyond the railroad 

reorganization context. See, e.g., In re Structurlite Plastics Corp., 86 B.R. 922, 931 (Bankr. S.D. Ohio 

1988) (“a bankruptcy court may exercise its equity powers under § 105(a) [of the Bankruptcy Code] 

to authorize payment of prepetition claims where such payment is necessary to permit the greatest 

likelihood of survival of the debtors and payment of creditors in full or at least proportionately”); In re 

Gulf Air, 112 B.R. 152, 153 (Bankr. W.D. La. 1989) (finding that payment of prepetition wage and 

benefit obligations was in the best interest of creditors and necessary for the successful reorganization 

of the debtor and granting the debtor's motion to pay prepetition employee expenses); In re Chateaugay 

Corp., 80 B.R. 279, 285 (S.D.N.Y. 1987) (finding that bankruptcy courts have the authority to 

authorize the debtor to pay certain prepetition claims). 

Moreover, since B & W, the Ninth Circuit has noted in other instances that certain pre-petition 

payments should be authorized regardless of whether they are priority payments under the Bankruptcy 

Code. See In re Adams Apple, Inc., 829 F.2d 1484, 1490 (9th Cir. 1987). In that case, in rejecting the 

appellants’ argument that the cross-collateralization clause in a financing agreement violated the 

“fundamental tenet of bankruptcy law that like creditors must be treated alike,” the Court of Appeals 

noted that the argument was “flawed because the fundamental tenet conflicts with another fundamental 

tenet – rehabilitation of debtors, which may supersede the policy of equal treatment.” Id. The Ninth 

Circuit further stated that:

[c]ases have permitted unequal treatment of pre-petition debts when necessary for 

rehabilitation, in such contexts as (i) pre-petition wages to key employees; (ii) hospital 

malpractice premiums incurred prior to filing; (iii) debts to providers of unique and 

irreplaceable supplies; and (iv) peripheral benefits under labor contracts.

Id. 

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Numerous Courts within the Ninth Circuit have followed the reasoning of In re Adams Apple

in holding that the payment of certain pre-petition claims is not categorically barred when the payments 

promote the rehabilitation of the debtor. See, e.g., In re Pettit Oil Co., No. 13-47285, 2015 WL 

6684225, at *8 (Bankr. W.D. Wash. Oct. 22, 2015) (citing In re Adams Apple Inc. for proposition that 

it “is permissible to treat prepetition debts unequally when necessary for rehabilitation.”); Gordon v. 

Hines (In re Hines), 147 F.3d 1185, 1191 (9th Cir. 1998) (applying “essentially a doctrine of necessity” 

to provide for the payment of the fees of debtor's counsel in chapter 7 cases because without this right 

the “entire [chapter 7] system would suffer a massive breakdown”). Furthermore, courts within this 

Circuit have granted relief substantially similar to that sought herein. See, e.g., In re NewZoom, Inc., 

Case No. 15-31141-HB (Bankr. N.D. Cal. Sept. 11, 2015) (approving motion for authority to pay 

prepetition claims related to shipping and warehousing charges).

The relief requested by this Motion represents an exercise of sound business judgment and is 

necessary to facilitate a successful reorganization. Authorizing the Debtors to pay the Lien Claims is 

in the best interests of the Debtors, their estates, and all parties in interest. The Lien Claimants provide 

valuable shipping, warehousing, and maintenance and repair services to the Debtors, and certain of the 

Lien Claimants currently hold goods and property that are necessary to the Debtors’ continued 

operations. If the Debtors do not pay the Lien Claims, the Shippers and Warehousemen likely will 

assert possessory liens on the Debtors’ property and thereby prevent access to goods necessary to the 

Debtors’ ongoing operations. Similarly, the Maintenance and Repairmen will assert mechanics’ and 

materialman’s liens on the Debtors’ properties, thereby securing the outstanding amounts they are 

owed. Under these circumstances, the Debtors believe that having the authority to satisfy these claims 

not only will avoid any disruptions to their operations and the ability to provide utility service to their 

customers, but should not prejudice any other parties in interest by reason of the lien rights held by the 

Lien Claimants. 

B. The Obligations Owed Under the Prepetition Orders Are Administrative Priority 

Claims Under Section 503(b) of the Bankruptcy Code

Pursuant to section 503(b) of the Bankruptcy Code, obligations that arise in connection with 

the postpetition delivery of goods and services are afforded administrative expense priority because 

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they benefit the estate postpetition. 11 U.S.C. § 503(b)(1)(A); see also In re Waste Systems Intern., 

Inc., 280 B.R. 824, 826 (Bankr. D. Del. 2002) (holding that a non-debtor party to a prepetition 

consulting agreement was entitled to an administrative expense claim equal to the value of any 

postpetition benefit conferred on the estate); In re Chateaugay Corp., 10 F.3d 944, 956 (2d. Cir. 1993) 

(holding that an obligation arising from the postpetition performance relating to a prepetition 

transaction is entitled to administrative expense priority); In re Palau Corp., 139 B.R. 942, 944 (B.A.P. 

9th Cir. 1992) (holding that in order for a claim arising from a prepetition services contract to be 

entitled to administrative expense priority, the claimant must have rendered services postpetition). 

Accordingly, granting the relief sought herein with respect to the Prepetition Orders merely confirms 

the priority as to such claims, will not provide the Vendors with any greater priority than they would 

otherwise be entitled to and will not prejudice any party in interest. Absent such relief, the Debtors 

may be required to needlessly expend substantial time and effort reissuing the Prepetition Orders to 

provide the Vendors with assurance of administrative priority. This disruption to the continuous flow 

of goods and services to the Debtors would negatively impact the Debtors’ ability to operate their 

businesses. Without the support of the Vendors, the Debtors will incur significant costs and lose 

valuable business relationships, to the detriment of all parties in interest. Therefore, the Court should 

confirm the administrative expense status of the Prepetition Orders.

C. Banks Should Be Authorized to Receive, Process, Honor, and Pay Checks Issued 

and Transfers Requested to Pay the Lien Claims and Obligations Owed Under the 

Prepetition Orders

The Debtors further request that the Court authorize, but not direct, the Banks to receive, 

process, honor, and pay, to the extent of funds on deposit, any and all checks issued or to be issued and 

electronic funds transfers requested or to be requested by the Debtors relating to the Lien Claims and 

the Prepetition Orders. The Debtors also seek authority, but not direction, to issue new postpetition 

checks or effect new postpetition electronic funds transfers in replacement of any checks or transfer 

requests on account of any prepetition Lien Claims or Prepetition Orders dishonored or rejected as a 

result of the Chapter 11 Cases.

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VI. RESERVATION OF RIGHTS

Nothing contained herein is intended to be or shall be construed as (i) an admission as to the 

validity of any claim against the Debtors, (ii) a waiver of the Debtors’ or any appropriate party in 

interest’s rights to dispute any claim, or (iii) an approval or assumption of any agreement, contract, 

program, policy, or lease under section 365 of the Bankruptcy Code. Likewise, if the Court grants the 

relief sought herein, any payment made pursuant to the Court’s order is not intended to be and should 

not be construed as an admission to the validity of any claim or a waiver of the Debtors’ rights to 

dispute such claim subsequently.

VII. IMMEDIATE ENTRY OF AN ORDER PURSUANT TO BANKRUPTCY RULE 6003

Bankruptcy Rule 6003 provides that, to the extent relief is necessary to avoid immediate and 

irreparable harm, a Bankruptcy Court may issue an order granting “a motion to use, sell, lease, or 

otherwise incur an obligation regarding property of the estate, including a motion to pay all or part of 

a claim that arose before the filing of the petition” before twenty-one (21) days after filing of the 

petition. As set forth above and in the Wells Declaration, if the Debtors fail to pay the Lien Claims, 

the Lien Claimants could potentially assert liens against the Debtors’ property for the amounts owed 

on account of the Lien Claims and may refuse to deliver and provide goods and future services to the 

Debtors. Thus, the Debtors’ failure to pay the Lien Claims could severely impair the Debtors’ ability 

to operate their businesses for the benefit of all parties in interest. Accordingly, the Debtors have 

satisfied the requirements for immediate entry of an order granting the relief requested herein pursuant 

to Bankruptcy Rule 6003.

VIII. REQUEST FOR BANKRUPTCY RULE 6004 WAIVERS

The Debtors request a waiver of the notice requirements under Bankruptcy Rule 6004(a) and 

any stay of the order granting the relief requested herein pursuant to Bankruptcy Rule 6004(h). As 

explained above, the relief requested herein is necessary to avoid immediate and irreparable harm to 

the Debtors. Accordingly, ample cause exists to justify the waiver of the notice requirements under 

Bankruptcy Rule 6004(a) and the fourteen day stay imposed by Bankruptcy Rule 6004(h), to the extent 

such notice requirements and stay apply.

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IX. NOTICE

Notice of this Motion will be provided to (i) the Office of the United States Trustee for Region 

17 (Attn: James L. Snyder, Esq. and Timothy Laffredi, Esq.); (ii) the Debtors’ fifty (50) largest 

unsecured creditors on a consolidated basis; (iii) the Securities and Exchange Commission; (iv) the 

Internal Revenue Service; (v) the Office of the California Attorney General; (vi) the California Public 

Utilities Commission; (vii) the Nuclear Regulatory Commission; (viii) the Federal Energy Regulatory 

Commission; (ix) the Office of the United States Attorney for the Northern District of California; (x) 

counsel for the agent under the Debtors’ proposed debtor in possession financing facilities; (xi) the 

Banks; and (xii) those persons who have formally appeared in these Chapter 11 Cases and requested 

service pursuant to Bankruptcy Rule 2002. Based on the urgency of the circumstances surrounding 

this Motion and the nature of the relief requested herein, the Debtors respectfully submit that no further 

notice is required.

No previous request for the relief sought herein has been made by the Debtors to this or any 

other court.

WHEREFORE the Debtors respectfully request entry of an order granting the relief requested 

herein and such other and further relief as the Court may deem just and appropriate.

Dated: January 29, 2019

WEIL, GOTSHAL & MANGES LLP

KELLER & BENVENUTTI LLP

By: /s/ Tobias S. Keller

Tobias S. Keller

Proposed Attorneys for Debtors 

and Debtors in Possession

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