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LABATON SUCHAROW LLP 

Thomas A. Dubbs 

Louis Gottlieb 

Carol C. Villegas 

Jeffrey A. Dubbin (SBN 287199) 

140 Broadway 

New York, New York 10005 

LOWENSTEIN SANDLER LLP 

Michael S. Etkin (pro hac vice)

Andrew Behlmann (pro hac vice) 

One Lowenstein Drive 

Roseland, New Jersey 07068

Lead Counsel to Lead Plaintiff and the 

Proposed Class 

Bankruptcy Counsel to Lead Plaintiff 

and the Proposed Class 

MICHELSON LAW GROUP 

Randy Michelson (SBN 114095) 

220 Montgomery Street, Suite 2100 

San Francisco, California 94104 

Additional counsel listed on Exhibit A 

Bankruptcy Counsel to Lead Plaintiff 

and the Proposed Class 

UNITED STATES BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

In re: 

PG&E CORPORATION 

 - and – 

PACIFIC GAS AND ELECTRIC 

COMPANY, 

 Debtors. 

Case No. 19-30088 (DM) (Lead Case) 

Chapter 11 

(Jointly Administered) 

☒ Affects Both Debtors 

☐ Affects PG&E Corporation 

☐ Affects Pacific Gas and Electric 

Company 

SECURITIES LEAD PLAINTIFF’S LIMITED

OBJECTION TO FOURTH MONTHLY FEE

STATEMENT OF SIMPSON THACHER &

BARTLETT LLP FOR ALLOWANCE AND

PAYMENT OF COMPENSATION AND

REIMBURSEMENT OF EXPENSES FOR

THE PERIOD OF JULY 1, 2019 THROUGH 

JULY 31, 2019 [ECF NO. 4032] 

Objection Deadline: October 21, 2019 

 4:00 PM 

(No hearing set) 

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Public Employees Retirement Association of New Mexico (“Lead Plaintiff” or “PERA”), 

the court-appointed lead plaintiff in the securities class action captioned as In re PG&E 

Corporation Securities Litigation, Case No. 18-03509 (the “Securities Litigation”) pending in 

the U.S. District Court for the Northern District of California (the “District Court”), on behalf of 

itself and the proposed class it represents in the Securities Litigation (the “Class”), together with 

York County on behalf of the County of York Retirement Fund, City of Warren Police and Fire 

Retirement System, and Mid-Jersey Trucking Industry & Local No. 701 Pension Fund, hereby 

submit this limited and continuing objection (the “Limited Objection”) to the Fourth Monthly 

Fee Statement of Simpson Thacher & Bartlett LLP for Allowance and Payment of Compensation 

and Reimbursement of Expenses for the Period of July 1, 2019 Through July 31, 2019 (the 

“Fourth Fee Statement”) [ECF No. 4032] filed by Simpson Thacher & Bartlett LLP (“Simpson 

Thacher”) in connection with its representation of certain defendants in the Securities Litigation 

who are current and former independent directors (the “Independent Director Defendants”) of the 

debtors in possession (the “Debtors”) in the above-captioned chapter 11 cases (the “Chapter 11 

Cases”). In support of this Limited Objection, Lead Plaintiff relies upon the declaration of Ty R. 

Sagalow submitted herewith (the “Sagalow Decl.”) and respectfully states as follows: 

PRELIMINARY STATEMENT 

Through its Fourth Fee Statement, Simpson Thacher seeks interim payment from the 

Debtors on account of at least $28,741 of legal fees for services provided to certain of the 

Independent Director Defendants in connection with their defense in the Securities Litigation 

during the month of June 2019 (the “Disputed Fees”). Payment of the Disputed Fees on behalf 

of the Independent Director Defendants is impermissible because the Debtors’ alleged obligation 

to indemnify the Independent Director Defendants gives rise to, at best, unsecured prepetition 

claims subject to subordination pursuant to section 510(b) of the Bankruptcy Code. Payment of 

such claims during the Debtors’ bankruptcy cases violates the absolute priority rule and would 

prejudice Lead Plaintiff and the Class, whose claims are of greater or equal priority to the 

Independent Director Defendants’ alleged indemnification claims and are not anticipated to be 

paid in full as will the Debtors’ other, senior creditors. Further, Lead Plaintiff believes that 

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resolution of this issue can simplify and focus insurance coverage issues and therefore improve 

the chances of settlement of the Securities Litigation against the Individual Defendants. 

On the other hand, denial of Simpson Thacher’s request for payment of the Disputed Fees 

will not prejudice the Independent Director Defendants in any way or leave them without a 

source of payment for their defense costs. Under the terms of the Debtors’ D&O liability 

insurance policies, the Independent Director Defendants’ reasonable and necessary defense costs, 

are covered directly by substantial “Side A” insurance from the first dollar if the Debtors do not 

indemnify the Independent Director Defendants (which, as discussed below, they cannot). The 

Debtors, as debtors in possession, owe fiduciary duties to all creditors, including Lead Plaintiff 

and the Class. While the Disputed Fees in the Fourth Fee Statement may not yet be particularly 

significant in the context of this case, the Independent Director Defendants’ legal fees in the 

Securities Litigation are certain to grow as the Securities Litigation proceeds. Squandering estate 

assets by paying legal fees where first-dollar insurance coverage is available, instead of pursuing 

payment from that insurance, contravenes those duties. Accordingly, the Court should enter an 

order (a) finding that the Debtors are prohibited, as a matter of law, from paying the Disputed 

Fees or any other defense costs incurred by the Independent Director Defendants or any other 

non-Debtor defendants in the Securities Litigation and (b) directing the Debtors and Independent 

Director Defendants to seek payment of reasonable and necessary fees from their D&O 

insurance carriers under the “Side A” coverage. 

BACKGROUND 

A. The D&O Policies 

According to the Debtors, two towers of directors’ and officers’ liability insurance 

policies issued in 2017 and 2018 (the “D&O Policies”) potentially provide coverage for the 

claims asserted against the Independent Director Defendants and other individual non-Debtor 

defendants in the Securities Litigation (collectively with the Independent Director Defendants, 

the “Individual Defendants”).1

 See Decl. of Elizabeth Collier (the “Collier Decl.”) [Adv. Pro. 

 

1

 Lead Plaintiff does not believe that coverage with respect to the Securities Litigation is 

limited to any one tower of D&O Policies and reserves all rights with respect thereto. 

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No. 19-03039, ECF. No. 3], ¶ 7. The D&O Policies provide three types of insurance coverage 

(“D&O Coverage”): (a) directly to the Individual Defendants, for losses that the Debtors do not 

indemnify (“Side A”); (b) to the Debtors, for losses they incur indemnifying the Individual 

Defendants (“Side B”); and (c) to the Debtors, for losses they incur on account of securities 

claims made directly against them (“Side C”). Id., Exs. F and G, at 4. 

B. The D&O Policies provide Side A D&O Coverage directly to the Individual 

Defendants. 

The D&O Policies explicitly provide Side A D&O Coverage directly to the Individual 

Defendants, not to or through the Debtors. Id., Ex. F and Ex. G, at 4 (“The INSURER shall pay 

on behalf of the DIRECTORS and OFFICERS all ULTIMATE NET LOSS for which the 

INSURED ORGANIZATION has not provided indemnification. . . .”). The D&O Policies 

further provide that, in the event the Debtors become subject to “FINANCIAL IMPAIRMENT” 

(a defined term that includes the commencement of these Chapter 11 Cases), “the INSURER 

shall pay on behalf of the DIRECTORS AND OFFICERS, under [Side A], ULTIMATE NET 

LOSS which would have been indemnified by the INSURED ORGANIZATION but for such 

FINANCIAL IMPAIRMENT.” Id. at 16-17. 

C. The D&O Policies have substantial coverage limits, including certain coverage 

available exclusively to the Individual Defendants. 

The 2017 and 2018 D&O Policies have aggregate coverage limits of $250 million and 

$300 million, respectively. See Decl. of Janaize Markland, [ECF No. 2472], ¶¶ 6, 8. Of that 

coverage, $50 million (2017) and $100 million (2018) is Side A difference-in-conditions 

coverage, which the Debtors have referred to as “D&O-dedicated insurance” because it is 

available exclusively to the Individual Defendants. Id. ¶¶ 6, 8.

All other coverage under all of the D&O Policies is subject to clauses that explicitly and 

fully subordinate all of the Debtors’ rights to seek any D&O Coverage under Side B or Side C to 

the Individual Defendants’ Side A D&O Coverage (the “Priority of Payments Clauses”). See

Collier Decl., Exs. F and G, at 5-6 (section entitled “V. PRIORITY OF PAYMENTS” in 2017 

and 2018 primary D&O Policies). The Priority of Payments Clauses explicitly provide that the 

D&O insurers must pay all claims under Side A before paying any claims under Side B or Side 

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C, which may be paid “only if and to the extent payment under [Side A] does not exhaust the 

applicable Limit of Liability.” These clauses also expressly provide that where the Individual 

Defendants incur claims under Side A, the Debtors, even if acting as debtors in possession, 

“shall have no interest in or any claim for any payments under this POLICY until” all claims 

under Side A have been paid in full. Id., Exs. F and G, at 6. Only then, if any coverage remains, 

could the Debtors seek Side B or Side C D&O Coverage. Id.

D. The Side A D&O Coverage has no self-insured retention. 

Under the express terms of the D&O Policies, the Side A D&O Coverage does not have a 

retention amount. See Collier Decl., Exs. F and G, at 2. Thus, even if the Debtors do not 

(because, as discussed below, they cannot) indemnify the Individual Defendants in connection 

with the Securities Litigation, the Independent Director Defendants have the immediate right to 

recover their reasonable and necessary defense costs directly from the insurers under the D&O 

Policies. 

E. The Simpson Thacher Retention Order 

By order entered May 10, 2019 (the “Simpson Thacher Retention Order”) [ECF No. 

1979], the Court authorized the Debtors to pay certain legal fees of Simpson Thacher as counsel 

to certain current and former independent directors of the Debtors, including but not limited to 

fees “with respect to (i) representation in ongoing litigation and regulatory inquiries, including 

matters involving the California Public Utilities Commission, (ii) fact-gathering, and (iii) related 

matters.” The debtors’ motion seeking approval to pay Simpson Thacher’s fees (the “Simpson 

Thacher Retention Motion” [ECF No. 1182] referred to certain pending litigation, regulatory 

inquiries, and criminal investigations and proceedings, but made no mention whatsoever of the 

Securities Litigation: 

Simpson Thacher was first engaged in December 2017 to advise 

the Independent Directors regarding legislation concerning 

dividends and related issues. Simpson Thacher also has been 

representing the Independent Directors regarding alleged breaches 

of fiduciary duties and other claims arising out of the 2017 and 

2018 wildfires — including in pending derivative litigation which 

the plaintiff has asserted will not be stayed during the Chapter 11 

Cases. See Plaintiff’s Response to Nominal Defendants, PG&E 

Corporation, and Pacific Gas and Electric Company’s Notice of 

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Stay of Proceedings, Bowlinger v. Chew et al., No. CGC-18-

572326 (Supp. Ct. S.F. City and Country, Feb. 5, 2019). In 

addition, Simpson Thacher continues to advise the Independent 

Directors concerning their fiduciary duties. 

Simpson Thacher Retention Motion at 4. The Simpson Thacher Retention Motion then 

described a number of ongoing regulatory inquiries and criminal proceedings. Id. at 4-5. 

Nowhere in this description of the matters for which the Debtor sought authority to pay Simpson 

Thacher did they indicate that Simpson Thacher intended to seek payment for defense costs in 

the Securities Litigation through this procedure. The only statement anywhere in the Simpson 

Thacher Retention Motion that could be even tangentially related to the Securities Litigation was 

a statement that “[t]he Independent Directors have requested that Simpson Thacher represent and 

advise them in connection with” a number of categories of issues, including “shareholder and 

securities-related issues including litigation[.]” Id. at 6. 

At the hearing on the Simpson Thacher Retention Motion, counsel for Lead Plaintiff 

expressly reserved rights with respect to payment from the D&O Policies of any defense costs 

arising in connection with the Securities Litigation – yet, counsel for the Debtors gave no 

indication whatsoever that they intended to pay any such fees directly from their estates. The 

first time Lead Plaintiff learned that the Debtors intended to pay the Independent Director 

Defendants’ defense costs instead of appropriately seeking payment directly from Side A D&O 

Coverage was when the Debtors asserted as much in their reply in further support of their motion 

to enjoin the continued prosecution of the Securities Litigation against the Independent Director 

Defendants and other non-Debtors. See Reply, Adv. Pro. No. 19-03039 ECF No. 14, at 7. As a 

result, the Simpson Thacher Retention Order is ambiguous at best with respect to payment by the 

Debtors of the Independent Director Defendants’ defense costs in the Securities Litigation and, 

in any event, should not be construed in a manner that will allow the Debtors to violate 

bankruptcy law and their fiduciary duties as debtors in possession. 

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F. The Fourth Fee Statement 

The following fifteen time entries in the Fourth Fee Statement, with a total billed amount 

of $28,741.00, relate directly to the Securities Litigation: 

Date Professional Narrative Time Amount 

7/19/2019 Alcabes, Elisa 

Re D&O insurance issues, review PERA 

opposition to motion to stay securities 

litigation (0.5). 

0.50 $ 610.00 

7/20/2019 Alcabes, Elisa Re D&O insurance issues, email PG&E (R. 

Reilly) re: PERA opposition (0.3). 0.30 $ 366.00 

7/21/2019 Alcabes, Elisa 

Re D&O insurance issues, email P. Curnin 

and R. Perrin re: PERA opposition brief 

and call to discuss same (0.3). 

0.30 $ 366.00 

7/22/2019 Alcabes, Elisa 

Re D&O insurance issues, review/analyze 

D&O insurance policies re: arguments 

asserted in PERA opposition brief (1.0); 

email to P. Curnin and N. Goldin re: same 

(0.4); prepare for (0.3) and conference call 

w/ Weil (K. Kramer and others), P. Curnin, 

N. Goldin and Latham (R. Perrin) re: reply 

in further support of stay motion (0.5); 

follow-up t/cs w/ K. Kramer and N. Goldin 

re: same (0.4). 

2.60 $ 3,172.00 

7/22/2019 Sparks Bradley, 

Rachel 

Review filed opposition re: securities 

adversary proceeding (1.4); emails w/ N. 

Goldin and J. Calderon re: same (0.5). 

1.90 $ 2,080.50 

7/23/2019 Calderon, Justin 

Review securities plaintiffs' opposition to 

PG&E motion for preliminary injunction 

(0.9), incl. research of caselaw re: same 

(3.1). 

4.00 $ 2,800.00 

7/24/2019 Alcabes, Elisa 

Re D&O insurance issues, tc/email PG&E 

(R. Reilly) re: insurance issues for reply in 

further support motion to stay securities 

litigation (0.5). 

0.50 $ 610.00 

7/24/2019 Sparks Bradley, 

Rachel 

Emails w/ N. Goldin re: securities 

adversary proceeding (0.5); analysis re: 

same (0.4). 

0.90 $ 985.50 

7/24/2019 Calderon, Justin 

Further review securities plaintiffs' 

opposition to PG&E motion for 

preliminary injunction (0.5), incl. rsrch. of 

caselaw re: same (2.8). 

3.30 $ 2,310.00 

7/29/2019 Alcabes, Elisa 

Review/revise draft Reply in further 

support of stay of Securities Litigation re: 

D&O insurance arguments (4.7); tc/email 

company and team re: same (0.3). 

5.00 $ 6,100.00 

7/29/2019 Calderon, Justin 

Review and revise draft of reply brief ISO 

motion for preliminary injunction (2.8); 

email to R. Sparks Bradley re: same (0.2). 

3.00 $ 2,100.00 

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Date Professional Narrative Time Amount 

7/29/2019 Sparks Bradley, 

Rachel 

Review reply brief on adversary 

proceeding re: securities actions (0.9); 

emails w/ J. Calderon and E. Alcabes re: 

same (0.5). 

1.40 $ 1,533.00 

7/30/2019 Alcabes, Elisa 

Re D&O insurance, further revise draft 

Reply in further support of stay of 

Securities Litigation re: D&O insurance 

issues (1.0); email team re: same (0.3); 

email Weil team re: same (0.2). 

1.50 $ 1,830.00 

7/30/2019 Calderon, Justin 

Further review and revise draft of reply 

ISO motion for preliminary injunction 

(3.1). 

3.10 $ 2,170.00 

7/31/2019 Alcabes, Elisa 

Re D&O insurance, review revised draft 

Reply from Weil (K. Kramer) (0.7); prep 

mark- up re: same (0.5); email K. Kramer 

re: same (0.2). 

1.40 $ 1,708.00 

 Total $ 28,741.00 

See Fourth Fee Statement, Ex. D, pp. 28-30. 

LIMITED OBJECTION 

Because any indemnification claims against the Debtors by the Independent Director 

Defendants are unsecured, subordinated, pre-petition claims, the Debtors cannot indemnify the 

Independent Director Defendants during the pendency of the Chapter 11 Cases, including by 

paying the Disputed Fees on their behalf. Instead, the Independent Director Defendants should 

be required to pursue insurance coverage for their reasonable and necessary defense costs 

directly from the available Side A D&O Coverage. 

A. The Independent Director Defendants’ claims, if any, for payment of the 

Disputed Fees are prepetition claims. 

Any claims the Independent Director Defendants might assert for indemnification in 

connection with the Securities Litigation, including for payment of the Disputed Fees, are 

prepetition claims. See, e.g., Siegel v. Federal Home Loan Mortg. Corp., 143 F.3d 525, 532-33 

(9th Cir. 1998); O’Loghlin v. County of Orange, 229 F.3d 871, 874 (9th Cir. 2000) (“A claim 

arises, for purposes of discharge in bankruptcy, at the time of the events giving rise to the 

claim”); The Official Comm. of Creditors Holding Unsecured Claims v. Painewebber Inc. (In re 

De Laurentiis Enter. Grp., Inc.), 124 B.R. 305, 308 (C.D. Cal. 1991) (claims for payment of 

attorneys’ fees are a subset of indemnification claims). As a general rule, a claim is only entitled 

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to administrative expense priority if it arose from a postpetition transaction and substantially 

benefited the estate. In re DAK Indus., Inc., 66 F.3d 1091, 1094 (9th Cir. 1995). 

In Siegel, the Ninth Circuit discussed and relied upon its earlier holding, in In re 

Christian Life Center, 821 F.2d 1370 (9th Cir. 1987), that a postpetition indemnification claim 

based on prepetition services is a prepetition claim, not an administrative expense claim: 

Although the legal fees expended in defending a corporate officer 

in In re Christian Life were actually incurred post-petition, we held 

that the claim arose pre-petition because the corporation’s 

obligation to indemnify the officer arose from pre-petition 

services, i.e., it was a form of compensation. 

In reaching that conclusion, we emphasized that “it makes no 

difference that the duty to indemnify the officer for litigation 

expenses . . . did not accrue until after the petition was filed when 

the officer incurred those expenses; the critical fact is that the 

claim for indemnity arose from pre-petition services the officer 

provided the corporation.” 

Siegel, 143 F.3d at 533 (quoting Christian Life Center, 821 F.2d at 1374) (emphasis added); see 

also In re Baldwin-United Corp., 43 B.R. 443, 454-56 (S.D. Ohio 1984) (prohibiting 

advancement of officers’ legal fees as an administrative expense under an indemnity agreement 

for prepetition services). 

This area of law is well-settled. See, e.g., In re Huffy Corp., 424 B.R. 295, 305 (Bankr. 

S.D. Ohio 2010) (“Courts ‘have almost universally held that a contractual right to 

indemnification is a prepetition contingent claim if the contract was executed before the 

bankruptcy filing.’”) (collecting cases); In re Downey Fin. Corp., 428 B.R. 595, 601 n.16 

(Bankr. D. Del. 2010) (“Once an organization files for bankruptcy, the Bankruptcy Code 

prohibits the debtor from indemnifying the officers and directors on an ongoing basis. See 11 

U.S.C. § 362(a)(3).”); In re Mid-American Waste Systems, Inc., 228 B.R. 816 (Bankr. D. Del. 

1999) (holding that the contractual claims of officers and directors for indemnity arose when the 

contract was executed and were therefore pre-petition, not administrative, claims); In re 

Pennsylvania Truck Lines, Inc., 189 B.R. 331 (Bankr. E.D. Pa. 1995) (holding that a claim under 

a prepetition indemnification contract was a prepetition claim even though under applicable state 

law that claim did not accrue until after the petition date); In re Amfesco Indus., Inc., 81 B.R. 

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777, 784-86 (Bankr. E.D.N.Y. 1988) (holding that current and former directors’ claims for 

indemnification under a prepetition indemnification agreement were prepetition claims, not 

administrative expense claims, because the debtor’s duty to indemnify arose from the directors’ 

prepetition services and “[a]ll of the operative facts, legal relationships, and conduct of the 

Applicants upon which is based the threatened litigation occurred pre-petition”). 

The Ninth Circuit has reached the same result in the analogous context of a request for 

payment of postpetition attorneys’ fees by a debtor pursuant to a provision in a prepetition 

contract, adopting a Bankruptcy Appellate Panel opinion holding that 

“So long as the right to collect the fees existed pre-petition, the fact 

that the fees were actually incurred during the postpetition period 

is not relevant to the determination of whether the creditor has an 

allowable pre-petition claim for the fees.” . . . Postpetition fees can 

be fairly contemplated when the parties have provided for them in 

their contracts and thus are contingent claims as of the petition 

date. . . . As stated by one leading commentator: “In general, if the 

creditor incurs the attorneys' fees postpetition in connection with 

exercising or protecting a prepetition claim that included a right to 

recover attorneys' fees, the fees will be prepetition in nature, 

constituting a contingent prepetition obligation that became fixed 

postpetition when the fees were incurred.” 

In re SNTL Corp., 571 F. 3d 826, 843-44 (9th Cir. 2009) (quoting In re New Power Co., 313 

B.R. 495, 508 (Bankr. N.D. Ga. 2004) and 5 COLLIER ON BANKRUPTCY § 553.03[1][i] (15th ed. 

2007)) (adopting B.A.P. opinion). 

Here, all of the operative facts, legal relationships, and conduct underlying the Securities 

Litigation occurred prior to the Petition Date. The charter provisions and board resolutions 

pursuant to which the Debtors seek to indemnify the Independent Director Defendants were all 

executed fifteen or more years before the Petition Date. See Collier Decl., Exs. B (utility articles 

of incorporation dated April 12, 2004), C (PG&E Corp. articles of incorporation dated May 29, 

2002), D (utility board resolution dated July 19, 1995), and E (PG&E Corp. board resolution 

dated December 18, 1996). All of the Independent Director Defendants’ conduct giving rise to 

the claims and causes of action asserted against them in the Securities Litigation occurred before 

the Petition Date. 

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Most importantly, any duty the Debtors may have to indemnify the Independent Director 

Defendants arises from their services as directors of the Debtors prior to the Petition Date. As a 

result, any indemnification claims the Non-Debtor Defendants might assert are ordinary, 

prepetition, unsecured claims subject to the same claims process as any other ordinary, 

prepetition, unsecured claims. See, e.g., In re All Seasons Resorts, Inc., 79 B.R. 901, 904 

(Bankr. C.D. Cal. 1987) (the debtor’s officers could “seek indemnification from [the] debtor, but 

their claim will be treated like any pre-petition, unsecured claim”). 

B. The Independent Director Defendants’ alleged indemnification claims are 

subordinated pursuant to section 510(b) of the Bankruptcy Code.

The claims and causes of action asserted in the Securities Litigation all arise from 

purchases and sales of securities of the Debtors. Thus, any claims the Independent Director 

Defendants might assert against the Debtors for indemnification in connection with the Securities 

Litigation would be statutorily subordinated to all secured, administrative, priority, and 

unsecured claims against the Debtors pursuant to 11 U.S.C. § 510(b), which provides: 

For the purpose of distribution under this title, a claim arising from 

rescission of a purchase or sale of a security of the debtor or of an 

affiliate of the debtor, for damages arising from the purchase or 

sale of such a security, or for reimbursement or contribution 

allowed under Section 502 on account of such a claim, shall be 

subordinated to all claims or interests that are senior to or equal the 

claim or interest represented by such security, except that if such 

security is common stock, such claim has the same priority as 

common stock. 

11 U.S.C. § 510(b) (emphasis added); De Laurentiis, 124 B.R. 305, 310 (C.D. Cal. 1991) 

(subordinating underwriter’s claim for reimbursement of attorneys’ fees incurred in defense of a 

securities action); see also In re Touch Am. Holdings, Inc., 381 B.R. 95 (Bankr. D. Del. 2008) 

(“The plain language of this section is broad enough to include indemnification claims for both 

liabilities and expenses incurred on account of a claim for ‘damages arising from the purchase or 

sale’ of the debtor’s or its affiliate’s securities”); In re Jacom Computer Servs., 280 B.R. 570, 

572 (Bankr. S.D.N.Y. 2002) (“[Section] 510(b) intends to subordinate the indemnification claims 

of officers, directors, and underwriters for both liability and expenses incurred in connection 

with the pursuit of claims for rescission or damages by purchasers or sellers of the debtor’s 

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securities.”); In re Mid-American Waste Sys., Inc., 228 B.R. 816, 829 (Bankr. D. Del. 1999) 

(subordinating claims of debtor’s officers, directors, and underwriters for indemnification of both 

liability and expenses resulting from securities action by purchasers and sellers of the debtor’s 

securities). 

Under Section 510(b), any indemnification claims the Independent Director Defendants 

might assert against the Debtors would be subordinated to all of PG&E’s secured and unsecured 

funded debt, all administrative expenses and priority unsecured claims, all unsecured trade debt, 

and all wildfire-related personal injury and property damage claims, all of which must be paid in 

full before the Independent Director Defendants would be entitled to payment of any of their 

alleged indemnification claims. 

C. The Disputed Fees should be paid only from Side A D&O Coverage, to the 

extent they are reasonable and necessary. 

As discussed above, the Independent Director Defendants’ alleged claims for 

indemnification from the Debtors are – at the very most – subordinated, unsecured, prepetition 

claims that are unlikely to be paid in full through any chapter 11 plan.2 As such, those claims 

cannot be paid by the Debtors during the Chapter 11 Cases, including indirectly through 

payment of the Disputed Fees on behalf of the Independent Director Defendants. Where the 

Debtors do not indemnify the Independent Director Defendants (here, because they cannot due to 

their bankruptcy filing), the Side A D&O Coverage provides insurance coverage directly to the 

Independent Director Defendants, paying their reasonable and necessary defense costs from the 

first dollar without the need for the Debtors to pay one cent out of pocket. See pp. 3-5 above; 

Sagalow Decl. ⁋⁋ 12-14. Accordingly, the Court should (a) find that the Debtors are prohibited, 

as a matter of law, from paying the Disputed Fees or any other defense costs incurred by the 

Independent Director Defendants or any other non-Debtor defendants in the Securities Litigation 

and (b) direct the Debtors and Independent Director Defendants to seek payment of their 

reasonable and necessary fees from the Side A D&O Coverage under the D&O Policies. 

 

2

 Any potential indemnification claims may also be subject to disallowance if such claims 

remain contingent. See 11 U.S.C. § 502(e)(1)(B). 

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RESERVATION OF RIGHTS

Lead Plaintiff objects to (a) allowance, on an interim or final basis, of any and all defense 

costs incurred by any non-Debtor defendants in the Securities Litigation, including but not 

limited to the Independent Director Defendants (“Non-Debtor Defendant Defense Costs”) and 

(b) payment by the Debtors, on an interim or final basis, of any Non-Debtor Defendant Defense 

Costs except pursuant to a confirmed chapter 11 plan. Accordingly, this Limited Objection 

should be considered a continuing objection to future requests for allowance and/or payment 

from the Debtors’ estates of defense costs by the Independent Director Defendants or any other 

non-Debtor defendants in the Securities Litigation, whether monthly, interim, or final. To the 

extent any of the legal fees sought by Simpson Thacher in the Fourth Fee Statement constitute 

Non-Debtor Defendant Defense Costs but were not itemized in this Limited Objection, such fees 

constitute Disputed Fees and Lead Plaintiff expressly objects to any allowance and/or payment 

thereof. Lead Plaintiff also objects to the Disputed Fees, and to any other defense costs for 

which any Defendants seek payment from the D&O Policies, to the extent that they are not 

deemed reasonable and necessary by the D&O insurers as required by the Side A D&O 

Coverage. Failure to identify any Non-Debtor Defendant Defense Costs in this Limited 

Objection does not constitute a waiver of any rights with respect thereto, including but not 

limited to the right to object to allowance and/or payment thereof in connection with any interim 

or final application for compensation. 

CONCLUSION 

For all of the foregoing reasons, Lead Plaintiff respectfully requests that the Court enter 

an order (a) finding that the Debtors are prohibited from paying the Disputed Fees or any other 

defense costs incurred by the Independent Director Defendants in the Securities Litigation and 

(b) direct the Debtors and Independent Director Defendants to instead seek payment of the 

Disputed Fees (to the extent reasonable and necessary), and any other reasonable and necessary 

defense costs incurred by the Independent Director Defendants in the Securities Litigation, from 

the Side A D&O Coverage under the D&O Policies. 

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Dated: October 21, 2019 LOWENSTEIN SANDLER LLP 

MICHELSON LAW GROUP 

By: /s/ DRAFT Randy Michelson (SBN 114095) 

Bankruptcy Counsel to Lead Plaintiff and the Class 

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EXHIBIT A 

COUNSEL 

LOWENSTEIN SANDLER LLP 

Michael S. Etkin (pro hac vice) 

Andrew Behlmann (pro hac vice) 

One Lowenstein Drive 

Roseland, New Jersey 07068 

Telephone 973-597-2500 

Facsimile 973-597-2333 

metkin@lowenstein.com 

abehlmann@lowenstein.com 

MICHELSON LAW GROUP 

Randy Michelson, Esq. (SBN 114095) 

220 Montgomery Street, Suite 2100 

San Francisco, CA 94104 

Telephone 415-512-8600 

Facsimile 415-512-8601 

randy.michelson@michelsonlawgroup.com 

Bankruptcy Counsel to Lead Plaintiff and the Proposed Class 

LABATON SUCHAROW LLP

Thomas A. Dubbs 

Louis Gottlieb 

Carol C. Villegas 

Jeffrey A. Dubbin (SBN 287199) 

Aram Boghosian 

140 Broadway 

New York, New York 10005 

Telephone 212-907-0700 

tdubbs@labaton.com 

lgottlieb@labaton.com 

cvillegas@labaton.com 

jdubbin@labaton.com 

aboghosian@labaton.com 

Lead Counsel to Lead Plaintiff and the 

Proposed Class 

WAGSTAFFE, VON LOEWENFELDT, 

BUSCH & RADWICK, LLP 

James M. Wagstaffe (SBN 95535) 

Frank Busch (SBN 258288) 

100 Pine Street, Suite 725 

San Francisco, California 94111 

Telephone 415-357-8900 

wagstaffe@wvbrlaw.com 

busch@wvbrlaw.com 

Liaison Counsel for the Proposed Class

ROBBINS GELLER RUDMAN & DOWD LLP 

Darren J. Robbins (SBN 168593) 

Brian E. Cochran (SBN 286202) 

655 West Broadway, Suite 1900 

San Diego, California 92101 

Telephone 619-231-1058 

darrenr@rgrdlaw.com 

bcochran@rgrdlaw.com 

ROBBINS GELLER RUDMAN & DOWD LLP 

Willow E. Radcliffe (SBN 200089) 

Kenneth J. Black (SBN 291871) 

Post Montgomery Center 

One Montgomery Street, Suite 1800 

San Francisco, California 94104 

Telephone 415-288-4545 

willowr@rgrdlaw.com 

kennyb@rgrdlaw.com 

VANOVERBEKE, MICHAUD & 

TIMMONY, P.C.

Thomas C. Michaud 

79 Alfred Street 

Detroit, Michigan 48201 

Telephone 313-578-1200 

tmichaud@vmtlaw.com 

Additional Counsel for the Securities Act Plaintiffs 

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EXHIBIT B 

RESERVATION OF RIGHTS 

This Limited Objection and any subsequent pleading, appearance, argument, claim, 

or suit made or filed by Lead Plaintiff, either individually or for the Class or any member 

thereof, do not, shall not, and shall not be deemed to: 

a. constitute a submission by Lead Plaintiff, either individually or for the Class 

or any member thereof, to the jurisdiction of the Bankruptcy Court; 

b. constitute consent by Lead Plaintiff, either individually or for the Class or 

any member thereof, to entry by the Bankruptcy Court of any final order or 

judgment, or any other order having the effect of a final order or judgment, 

in any non-core proceeding, which consent is hereby withheld unless, and 

solely to the extent, expressly granted in the future with respect to a specific 

matter or proceeding; 

c. waive any substantive or procedural rights of Lead Plaintiff or the Class or 

any member thereof, including but not limited to (a) the right to challenge 

the constitutional authority of the Bankruptcy Court to enter a final order or 

judgment, or any other order having the effect of a final order or judgment, 

on any matter; (b) the right to have final orders and judgments, and any 

other order having the effect of a final order or judgment, in non-core 

matters entered only after de novo review by a United States District Court 

judge; (c) the right to trial by jury in any proceedings so triable herein, in the 

Chapter 11 Cases, including all adversary proceedings and other related 

cases and proceedings (collectively, “Related Proceedings”), in the Securities 

Litigation, or in any other case, controversy, or proceeding related to or 

arising from the Debtors, the Chapter 11 Cases, any Related Proceedings, or 

the Securities Litigation; (d) the right to seek withdrawal of the bankruptcy 

reference by a United States District Court in any matter subject to 

mandatory or discretionary withdrawal; or (e) all other rights, claims, 

actions, arguments, counterarguments, defenses, setoffs, or recoupments to 

which Lead Plaintiff or the Class or any member thereof are or may be 

entitled under agreements, at law, in equity, or otherwise, all of which are 

expressly reserved. 

 For the avoidance of doubt, Lead Plaintiff, on behalf of itself and the Class, does 

not, and will not impliedly, consent to this Court’s adjudication of, including through any 

order of this Court purporting to adjudicate, release, waive, enjoin, or otherwise impact, 

the claims of Lead Plaintiff and the Class or any member thereof against any defendant 

now or hereafter named in the Securities Litigation. 

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