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ATTORNEYS AT LAW

SAN FRANCISCO

Robert A. Julian (SBN 88469)

Cecily A. Dumas (SBN 111449)

BAKER & HOSTETLER LLP

1160 Battery Street, Suite 100

San Francisco, CA 94111

Telephone: 628.208.6434

Facsimile: 310.820.8859

Email: rjulian@bakerlaw.com

Email: cdumas@bakerlaw.com

Eric E. Sagerman (SBN 155496)

David J. Richardson (SBN 168592)

Lauren T. Attard (SBN 320898)

BAKER & HOSTETLER LLP

11601 Wilshire Blvd., Suite 1400

Los Angeles, CA 90025-0509

Telephone: 310.820.8800

Facsimile: 310.820.8859

Email: esagerman@bakerlaw.com

Email: drichardson@bakerlaw.com

Email: lattard@bakerlaw.com

Counsel to the Official Committee of Tort Claimants

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

In re:

PG&E CORPORATION

-andPACIFIC GAS AND ELECTRIC 

COMPANY,

Debtors.

□ Affects PG&E Corporation

□ Affects Pacific Gas and Electric 

Company

■ Affects both Debtors

*All papers shall be filed in the Lead Case, 

No. 19-30088 (DM)

Bankruptcy Case 

No. 19-30088 (DM)

Chapter 11 (Lead Case)

(Jointly Administered)

RESPONSE OF OFFICIAL COMMITTEE 

OF TORT CLAIMANTS TO DEBTORS’ 

RESTATED RESTRUCTURING SUPPORT 

AND SETTLEMENT AGREEMENT WITH 

THE CONSENTING SUBROGATION 

CLAIMHOLDERS [DKT NO. 4554-1]

Date: November 13, 2019

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

Place: United States Bankruptcy Court

Courtroom 17, 16th Floor

San Francisco, CA 94102

Case: 19-30088 Doc# 4629 Filed: 11/08/19 Entered: 11/08/19 15:31:08 Page 1 of

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The Official Tort Claimants’ Committee (“TCC”) respectfully files this response to the 

Restated Restructuring Support Agreement (the “Settlement”) [Dkt. No. 4554-1] filed by PG&E 

Corporation and Pacific Gas & Electric Company (“PG&E” and collectively, the “Debtors”), and 

the Ad Hoc Subrogation Group (“Subrogation Claimants”). In support of this response, the TCC 

is filing contemporaneously herewith the Declaration of Brent C. Williams (the “Williams Decl.”) 

and the Declaration of Lauren T. Attard (the “Attard Decl.”).

A. The Key Points of Law that relate to this settlement approval follow:

1. A debtor can settle the amount of a claim against the estate, if the debtor establishes 

the settlements are in good faith, fair and equitable, but “preserve the rights of the creditors.” In re 

A&C Properties, 784 F.2d 1377, 1382 (9th Cir. 1986).

2. The settlement cannot impair other creditors’ rights in the case. In re Technical 

Knockout Graphics, 833 F.2d 797, 803 (9th Cir. 1987) (adopting “fair and equitable” language of 

In re AWECO, Inc., 725 F.2d 293, 299 (5th Cir. 1984) (forbidding a settlement that reorders 

priorities)).

3. The settlement also cannot effect or force a release between two sets of creditors. 

See Resorts Int'l v. Lowenschuss (in re Lowenschuss), 67 F.3d 1394, 1401 (9th Cir. 1995) (“This 

court has repeatedly held, without exception, that § 524(e) precludes bankruptcy courts from 

discharging the liabilities of non-debtors.”) (emphasis added); American Hardwoods, Inc. v. 

Deutsche Credit Corp. (In re American Hardwoods Inc.), 885 F.2d 621, 626 (9th Cir. 1989) 

(finding “the bankruptcy court was powerless to discharge” nondebtor claims in a plan); Underhill 

v. Royal, 769 F.2d 1426, 1432 (9th Cir. 1985) (“The bankruptcy court ‘has no power to discharge 

the liabilities of a bankrupt's guarantor.’”). 

4. Under California law, an insurer’s payment of a portion of an insured’s claim against 

a tortfeasor permits the insurer to step into the insured’s position on the claim, and recover on a 

“subrogation claim” against the tortfeasor. Fireman's Fund Ins. Co. v. Maryland Casualty Co., 65 

Cal.App.4th 1279, 1291 (1998) (an insurer who pays a claim “is equitably subrogated to the 

claimant”) (emphasis in original).

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5. California’s and the federal common law’s made whole rule establishes a priority of 

payment between an insured victim and his or her insurance company: an insurer cannot settle or 

recover on its subrogation claim if the insured victim is prosecuting his or her claim against PG&E, 

and the state rule thereby subordinates the subrogation claim to the prosecuting victim’s claim. 

Barnes v. Independent Automobile Deals Association of California Health & Welfare Plan, 64 F.3d 

1389, 1395 (9th Cir. 1995) (adopting “as federal common law th[e] generally accepted rule that, in 

the absence of a clear contract provision to the contrary, an insured must be made whole before an 

insurer can enforce its right to subrogation”) (emphasis added); Chandler v. State Farm Mutual 

Automobile Insurance Co., 598 F.3d 1115, 1118-20 (9th Cir. 2010) (permitting insurer to pursue 

subrogation recovery where insured merely “sit[s] back and do[es] nothing to assert its rights 

against” the tortfeasor). 

6. Congress codified the common law subrogation and corresponding subordination 

provisions in Bankruptcy Code Section 509. In re Applause, LLC, 2006 Bankr. LEXIS 2341 at *14 

(Bankr. C.D. Cal. April 3, 2006) (“The language in Section 509(c) derives from the common law 

‘made whole’ rule ...”); In re Denby Stores, Inc., 86 B.R. 768, 779 (Bankr. S.D.N.Y. 1988) (holder 

of subrogation claim “is subordinated” under Section 509(c) until original claimants are “paid in 

full, either through payments under Title 11 or otherwise”).

7. In Dow Corning, and the California Central District’s Applause case, the courts held 

the subrogation and subordination rules applied to an insurer’s claims against the debtor under 

Bankruptcy Code section 509. In re Dow Corning Corp., 244 B.R. 705, 715 (E.D. Mich. 1999) 

(government’s Medicare obligations make it a codebtor with tortfeasor that caused injury for 

purposes of Section 509); citing 4 Collier on Bankruptcy P 502.06[2][b] (15th ed. rev. 1999) 

(“Under Section 502, codebtor status is broadly interpreted, and a claim for reimbursement has 

been held to presuppose a codebtor relationship”); In re Applause, LLC, 2006 Bankr. LEXIS 2341 

at *10-12 (if insurer’s claim was based on equitable subrogation, it was disallowed as debt of 

beneficiary “has not been paid in full,” and if based on Section 509, was disallowed given likelihood 

debtor would be incapable of paying the underlying claim in full).

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8. The Subrogation Claimants have filed six Bankruptcy Rule 2019 verified statements 

that admit their “subrogation claims...arise...as a matter of State or federal law, including...Section 

509 of the Bankruptcy Code.” See, e.g., Dkt. No. 4302 at 1 n.1. 

B. The Key Facts that relate to this settlement approval follow:

1. According to the Department of Insurance official reports, the Subrogation 

Claimants have reported they incurred losses, meaning paid and reserved and unpaid losses, arising 

from the 2017 North Bay and 2018 Camp Fires in a total amount of approximately $18.2 billion. 

Attard Decl. ¶¶ 3-4, Ex. A and B. 

2. The Subrogation Claimants’ motion to terminate exclusivity and attached plan term 

sheet allowed $15.8 billion of subrogation claims in this case. Attard Decl. Ex. C, Dkt. No. 3147, 

Term Sheet at 1.

3. The Subrogation Claimants’ plan term sheet required the Debtors to pay their claim 

in a proportion of “90% in new...preferred equity stock and 10% in cash.” Attard Decl. Ex. C, 

Term Sheet at 1.

4. The Subrogation Claimants’ plan term sheet required “the Debtors cash on hand at 

emergence and proceeds of...the issuance of Mandatory Convertible Preferred shall be used 

to...fund the creation of the Settlement Trust for Individual Wildfire Claimants.” Attard Decl. 

Ex. C, Term Sheet at 2.

5. The Subrogation Claimants requested the Debtors to settle their claims before the 

Subrogation Claimants filed any proofs of claims under penalty of perjury in this case.

6. The Debtors have proposed to settle the Subrogation Claimants’ eventual claims by 

allowing the subrogation claims in the amount of $11 billion; and also by guaranteeing a payment 

on the allowed claims of $11 billion cash on plan confirmation, irrespective of whether there will 

be cash available to pay wildfire victim claims. This is a complete reversal of the Subrogation 

Claimants’ own plan that paid the Subrogation Claimants 90% in stock, rather than cash. 

7. The Debtors have proposed to settle local public entity wildfire claims for the 

guaranteed payment of $1 billion in cash, subject to a fairness hearing during plan confirmation 

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when the Court will be in a position to determine whether the settlement is fair to all other wildfire 

claims in the context of the case as it is at the time. Attard Decl. Ex. G.

8. After the Debtors proposed to pay the guaranteed cash payments to the Subrogation 

Claimants and the settling Public Entities, the federal and state governments filed approximately 

$8.6 billion of wildfire claims. Attard Decl. Ex. D.

9. After the Debtors proposed to pay the guaranteed cash settlements to the 

Subrogation Claimants and settling Public Entities, wildfire victims filed approximately 70,000 

wildfire claims in this case. Attard Decl. Ex. E, at 5. Judge Donato has not yet estimated the value 

of the claims.

10. After the Debtors proposed to pay the guaranteed cash settlements to the 

Subrogation Claimants and settling Public Entities, PG&E’s equipment sparked the Kincade fire, 

which, according to the Debtors’ November 6, 2019 10-Q, could result in “significant liability in 

excess of insurance coverage that would be expected to have a material impact on PG&E 

Corporation’s and the Utility’s financial condition, results of operations, liquidity, and cash flows, 

as well as on the bankruptcy timing and process and the ability of the Utility to participate in the 

Wildfire Fund.” Attard Decl. Ex. F at 82.

11. After the Debtors proposed to pay the guaranteed cash settlements to the 

Subrogation Claimants and settling Public Entities, the Debtors filed their November 6, 2019 10-Q 

that discloses they also are subject to CPUC fines and criminal sanctions arising out of the Camp 

Fire. Attard Decl. Ex. F at 65-66, 74-75.

12. There is nothing in the record that shows whether the Debtors have enough liquidity 

or cash left in the estate to fully satisfy claims of the wildfire victims who have filed claims against 

the estate and who may file additional claims during the bar date extension, plus the $8.4 billion of 

government claims, the Kincade fire claims, or future wildfire claims that may arise from more 

PG&E equipment failures this fire season, the CPUC fines, or the Butte County criminal sanctions 

for causing the Camp Fire.

13. In order for the Debtors to provide the same amount of total consideration and form 

of consideration as provided to the fire victims in the Bondholder/TCC plan, and given the limited 

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cash left in the estate, the only form of recovery available is non-cash consideration. This 

consideration could include wildfire victims recovery property created pursuant to the Wildfire 

Victim Recovery Bonds, or other securitized bonds, and the proceeds of such bonds (if applicable), 

New HoldCo Common Stock, or Mandatory Convertible Preferred Stock (if applicable), and other 

non-cash considerations in the reorganized debtor. Williams Decl. at ¶ 5. 

C. The TCC’s objections to the Subrogation Claimants’ settlement follow:

1. The settlement is not fair to the unsettled wildfire claims, because the settlement 

locks up $11 billion in cash for the insurers and other Subrogation Claimants. In order for the 

Debtors’ plan to provide fire victims with $13.5 billion of total consideration as provided for in the 

Bondholders/TCC Plan, it is likely that a significant portion of the total consideration to fire victims 

would be provided in the form of equity and other non-cash consideration. Williams Decl. at ¶ 5.

2. The settlement is not in the best interests of the estate and its creditors: if the 

settlement is approved, the victims cannot settle their claims with the Debtors at the same level of 

total consideration that they have currently negotiated, because the victims’ own plan makes clear 

that they need at least half of their $13.5 billion of payments to be in cash. Id.

3. The settlement grants a guaranteed priority payment of cash to the insurers and their 

successor subrogation claimants, in violation of the made whole and subordination principles of 

California law and Section 509 of the Bankruptcy Code, which apply to the Subrogation Claimants 

according to their verified statements in this case; and hence, the settlement violates the victims’ 

priority rights in this case. The Subrogation Claimants have abandoned their July 2019 opening 

offer to take stock as their payment, a prior exercise of fiduciary protection of their insureds, in 

favor of a hard ball grab of all the cash in the estate, at the insured victims’ expense. This Court 

would respect a subordination clause in an intercreditor agreement; the result should not be any 

different in this case simply because we are dealing with individual victims instead of financial 

institutions. 

4. The settlement cannot be evaluated for fairness in relation to the remaining wildfire 

claims, outside the estimation and plan process, because the settlement guarantees payment of 

$11 billion in cash to the insurers, and the Court does not yet know whether or not there is sufficient 

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cash or equity value left in the estate to pay whatever amount estimation establishes is owed to the 

fire victims and the government on their claims, which presently exceed $20 billion, as well as the 

Kincade fire claims, future fire claims, CPUC fines, and Butte County criminal sanctions for the 

Camp Fire. The Debtors’ conditioning of their $1 billion settlement with the local public entity 

claimants in the context of plan confirmation is proof that a debtor in this context should not settle 

such claims out of the context of the overall plan construct.

5. The settlement is not fair or equitable to the wildfire victims because the 

Subrogation Claims are derivative of the wildfire victim claims, and hence should only be settled 

as part of a settlement that accords to the wildfire victims’ claims the same percentage liability 

allowance, the same type and percentage consideration, and the same payment terms. The Court is 

considering settling a portion of the victims’ claims against PG&E, to which the Subrogation 

Claimants are subrogated. By definition, a settlement of the victims’ claims, to which the 

Subrogation Claimants are subrogated, must be on the same or better terms granted to the insureds. 

This settlement fails in that regard by granting preferential and superior treatment to the 

Subrogation Claimants. 

6. The settlement was not an arms-length, good faith, settlement; the settlement is a 

collusive agreement between equity to benefit equity: Baupost Group LLC, a 4.6% equity holder 

in this case, holds 39.4% of the subrogation claims of the Ad Hoc Subrogation Group and controls 

the Subrogation Claimants’ settlement. In addition, three of the top four equity holders of PG&E 

own subrogation claims, including Baupost. Williams Decl. Ex. A; see also Williams Decl. ¶ 6. 

7. The settlement is not fair or equitable in any sense of those words: Baupost 

purchased $6 billion of subrogation claims, the majority of which for a reported 30 to 35 cents on 

the dollar, and stands to make billions of dollars in profit on its purchases. Williams Decl. Ex. D. 

In contrast, the victims who are living in tents and trailers trying to rebuild their lives would recover 

only stock in a fire prone felon, and would be unable to readily liquidate their stock for a fair price 

and rebuild. 

8. The settlement attempts to impose an illegal release by the victims in favor of the 

Subrogation Claimants; and, typical for the type of PG&E and insurer hard ball we have witnessed 

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to date, the release is one way only, by the insureds in favor of their insurers, and not the other way 

around. 

CONCLUSION

It is time to call this settlement what it is: a mistake. The Debtors have given away all their 

cash and placed the wildfire victims in a position of full risk in this case. For their part, the insurers 

participated in the stripping of cash for their own benefit, to the detriment of their insureds, to whom 

they owe duties of good faith and fair dealing. As a result, the parties are unable to resolve this 

case consensually while the settlement is a possibility. Litigation is assured if the Court approves 

the settlement over the TCC’s objections. Settlements are supposed to narrow the disputes in the 

case; this one would enlarge those disputes, and create new ones that would embroil the case in 

litigation past confirmation.

Wherefore, for all of the reasons argued herein and in the TCC’s Opposition to the 9019 

Motion, the TCC respectfully requests that this Court deny the Motion so this case may be resolved, 

or continue consideration of the settlement to plan confirmation.

Dated: November 8, 2019 BAKER & HOSTETLER LLP

By: /s/Robert A. Julian 

Robert A. Julian

Counsel to the Official Committee of Tort Claimants 

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