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Robert A. Julian (SBN 88469)

Cecily A. Dumas (SBN 111449)

BAKER & HOSTETLER LLP

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San Francisco, CA 94111

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Email: cdumas@bakerlaw.com

Eric E. Sagerman (SBN 155496)

David J. Richardson (SBN 168592)

Lauren T. Attard (SBN 320898)

BAKER & HOSTETLER LLP

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Los Angeles, CA 90025-0509

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Email: lattard@bakerlaw.com

Counsel for the Official Committee of Tort Claimants

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

In re:

PG&E CORPORATION,

- and -

PACIFIC 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)

OPPOSITION OF OFFICIAL 

COMMITTEE OF TORT CLAIMANTS’ 

TO SECURITIES LEAD PLAINTIFF’S 

MOTION TO APPLY BANKRUPTCY 

RULE 7023 TO CLASS PROOF OF 

CLAIM (Dkt. No. 5042)

Date: January 29, 2020

Time: 10:00 a.m.

Before: Hon. Dennis Montali

United States Bankruptcy Court

Courtroom 17, 16th Fl.

450 Golden Gate Ave.

San Francisco, CA 94102 

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TABLE OF CONTENTS

Page

I. INTRODUCTION ....................................................................................................................... 1

II. ARGUMENT ............................................................................................................................. 2

A. The Securities Claims, at Their Core, Are Derivative Claims Owned by the 

Estates ..................................................................................................................... 2

B. Derivative D&O Claims Have Been Assigned to the Fire Victim Trust, Which 

Has Priority ............................................................................................................. 7

C. The Requested Relief Requires a Finding that the TAC Pleads Direct Claims...... 8

D. Even if the Securities Action Asserted Direct Claims, They Are Subordinated..... 9

E. The Motion Fails to Satisfy the Rule 23 and Musicland Standards...................... 13

1. Rule 23 and the Musicland Standards....................................................... 13

2. The Motion Fails to Satisfy the First Musicland Factor, as It Precedes 

Class Certification..................................................................................... 14

3. The Motion Fails to Satisfy the Second Musicland Factor, as the 

Debtors’ Notice Program Was Sufficient ................................................. 17

4. The Motion Fails to Satisfy the Third Musicland Factor, as Class 

Certification Would Adversely Affect Administration of these 

Bankruptcy Cases...................................................................................... 18

III. CONCLUSION....................................................................................................................... 20

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TABLE OF AUTHORITIES

Page(s)

Cases

American Broadcasting Systems, Inc. v. Nugent (In re Betacom of Phoenix, Inc.),

240 F.3d 823 (9th Cir. 2001)............................................................................................... 9, 10

In re American Reserve Corp.,

840 F.2d 487 (7th Cir. 1988)................................................................................................... 13

In re Associated Cmty. Servs.,

520 B.R. 650 (Bankr. E.D. Mich. 2014) ................................................................................. 16

Bader v. Anderson,

179 Cal. App. 4th 775 (2009)................................................................................................ 7, 8

Bailey v. Jamesway Corp. (In re Jamesway Corp.),

1997 Bankr. LEXIS 825, 1997 WL 327105 (Bankr. S.D.N.Y. June 12, 1997)...................... 15

In re Bally Total Fitness of Greater N. Y.,

402 B.R. 616 (Bankr. S.D.N.Y. 2009) aff'd 411 B.R. 142 (S.D.N.Y. 2009).................... 13, 19

In re Casimiro,

2007 Bankr. LEXIS 1926 (Bankr. E.D. Cal. May 31, 2007).................................................. 16

In re Chaparral Energy, Inc.,

571 B.R. 642 (Bankr. D. Del. 2017) ....................................................................................... 14

In re Computer Learning Centers, Inc.,

344 B.R. 79 (Bankr. E.D. Va. 2006)........................................................................... 13, 18, 20

Cottonwood P’ship, L.L.P. v. Kivisto (In re SemCrude L.P.),

2012 U.S. Dist. LEXIS 163236, 2012 WL 5554819 (D. Del. November 15, 

2012) ....................................................................................................................................... 12

In re Craft,

321 B.R. 189 (Bankr. N.D. Tex. 2005)....................................................................... 13, 15, 18

In re Enron Corp.,

341 B.R. 141 (Bankr. S.D.N.Y. 2006).................................................................................... 10

In re Ephedra Prods. Liab. Litig.,

329 B.R. 1 (S.D.N.Y. 2005) 329 B.R. .................................................................. 13, 18, 19, 20

Federal Land Bank v. Stiles,

700 F. Supp. 1060 (D. Mont. 1988).......................................................................................... 3

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Fisher v. Apostolou,

155 F.3d 876 (7th Cir. 1998)................................................................................................... 12

Fox v. Picard (In re Madoff),

848 F. Supp. 2d 469 (S.D.N.Y. 2012), aff’d Marshall v. Picard (In re Bernard 

L. Madoff Inv. Secs. LLC), 740 F.3d 81 (2d Cir. 2014) ...................................................... 3, 12

Gagnon Co., Inc. v. Nevada Desert Inn, Inc.,

45 Cal.2d 448 (1955) ................................................................................................................ 3

Geer v. Cox,

242 F.Supp. 2d 1009 (D. Kan. 2003)........................................................................................ 3

Gentry v. Circuit City Stores, Inc. (In re Circuit City Stores, Inc.),

439 B.R. 652 (E.D. Va., Oct. 29, 2010).................................................................................. 13

In re Granite Partners,

L.P., 208 B.R. 332 (Bankr. S.D.N.Y. 1997) ........................................................................... 10

In re Ionosphere Clubs, Inc.,

17 F.3d 600 (2d Cir. 1994)........................................................................................................ 8

J.I. Case Co. v. Borak,

377 U.S. 426, 84 S. Ct. 1555, 12 L. Ed. 2d 423 (1964)............................................................ 4

Jackson v. Fischer,

2013 U.S. Dist. LEXIS 179233, 2013 WL 6732872 (N.D. Cal. December 20, 

2013) ..................................................................................................................................... 3, 6

In re Jasmine,

Ltd., 258 B.R. 119 (D. N.J. 1999)........................................................................................... 11

Jones v. H. F. Ahmanson & Co.,

1 Cal.3d 93 (1969) ............................................................................................................ 3, 4, 5

Klopstock v. Superior Court,

17 Cal.2d 13 (1941) .................................................................................................................. 8

LaSala v. Bordier et Cie,

519 F.3d 121 (3d Cir. 2008)...................................................................................................... 7

Liquidating Trust Comm. of the Del Biaggio Liquidating Trust v. Freeman (In re 

Del Biaggio),

834 F.3d 1003 (9th Cir. 2016)................................................................................................... 9

Louisiana World Exposition, Inc. v. Fed. Insurance Co.(In re Louisiana World 

Exposition, Inc.),

832 F.2d 1391 (5th Cir. 1987)................................................................................................. 11

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Lucas v. Dynergy Inc. (In re Dynegy Inc.),

2013 U.S. Dist. LEXIS 78479, 2013 WL 2413482 (S.D.N.Y. June 4, 2013) ........................ 19

Meglolia v. Maxwell,

293 B. R. 443 (N. D. Ill. 2003) ............................................................................................... 12

Metro. Inv. Sec., Inc. v. Cauvel (In re Metro. Mortg. & Sec. Co.),

325 B.R. 851 (Bankr. E.D. Wash. 2005)........................................................................... 11, 12

Mieuli v. DeBartolo,

2001 U.S. Dist. LEXIS 22519, 2001 WL 777091 (N.D. Cal. May 7, 2001)............................ 6

In re Musicland Holding Corp.,

362 B.R. 644 (Bankr. S.D.N.Y. 2007)............................................................................. passim

Neathery v. Rench, 

2010 U.S. Dist. LEXIS 71192, 2010 WL 2803984 (S.D. Ill. July 15, 2010) ........................... 7

Nelson v. Anderson,

72 Cal. App. 4th 111 (1999)...................................................................................................... 5

New York City Employees' Ret. Sys. v. Jobs,

593 F.3d 1018 (9th Cir. 2010)................................................................................................... 4

Orange County Nursery, Inc. v. Minority Voting Trust (In re Orange County 

Nursery Inc.),

523 B.R. 692 (C.D. Cal. 2014).................................................................................................. 9

Pareto v. FDIC,

139 F.3d 696 (9th Cir. 1998)............................................................................................. 5, 6, 7

Pensco Trust Co. v. Tristar Esperanza Props., LLC (In re Tristar Esperanza 

Props., LLC),

782 F.3d 492 (9th Cir. 2015)..................................................................................................... 9

PHP Healthcare Corp. v. HIP Foundation, Inc. (In re PHP Healthcare Corp.),

1999 Bankr. LEXIS 2047 (Bankr. D. Del. March 31, 1999).................................................. 11

In re Quick Cash, Inc.,

2015 Bankr. LEXIS 3852 (Bankr. D. N.M. November 10, 2015).......................................... 20

Rodriguez v. Tarragon Corp. (In re Tarragon Corp.),

2010 Bankr. LEXIS 3410 (Bankr. D. N.J. September 24, 2010)............................................ 17

In re Sacred Heart Hosp.,

182 B.R. 413 (Bankr. E.D. Pa. 1995)...................................................................................... 11

In re Sacred Heart of Norristown,

177 B.R. 16 (Bankr. E.D. Pa. 1995).................................................................................. 16, 18

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Sax v. World Wide Press, Inc.,

809 F.2d 610 (9th Cir. 1986)............................................................................................. 2, 3, 7

Schuster v. Gardner,

127 Cal.App.4th 305 (2005).................................................................................................. 4, 5

Smith v. Waste Mgmt. Inc., 

407 F.3d 381 (5th Cir. 2005)............................................................................................ passim

In re THC Financial Corp.,

679 F.2d 784 (9th Cir. 1982) (Bankruptcy Act) ..................................................................... 10

In re Thomson McKinnon Secs., Inc.,

150 Bankr. 98 (Bankr. S.D.N.Y. 1992)............................................................................ passim

In re VeriSign, Inc., Derivative Litig.,

531 F. Supp. 2d 1173 (N.D. Cal. September 14, 2007)............................................................ 4

In re Verity Health Sys. of Cal.,

2019 Bankr. LEXIS 1818, 2019 WL 2461688 (Bankr. C.D. Cal. June 11, 

2019) ........................................................................................................................... 14, 15, 17

In re Vitek,

51 F.3d 530 (5th Cir. 1995)..................................................................................................... 11

Wade v. Kirkland,

118 F.3d 667 (9th Cir. 1997)................................................................................................... 14

In re Wash. Mut., Inc. Sec.,

2010 U.S. Dist. LEXIS 152260, 2010 WL 11591389 (W.D. Wash. February 

17, 2010) ................................................................................................................................. 10

Williams v. McGreevey (Touch Am. Holdings, Inc.),

401 B.R. 107 (Bankr. D. Del. 2009) ......................................................................................... 7

Woods v. Google LLC,

2018 U.S. Dist. LEXIS 143879, 2018 WL 4030570 (N.D. Cal. August 23, 

2018) ....................................................................................................................................... 14

In re Woodward & Lothrop Holdings, Inc.,

205 B.R. 365 (Bankr. S.D.N.Y. 1997).............................................................................. 15, 18

Statutes

11 U.S.C. § 105(a) ........................................................................................................................ 15

11 U.S.C. § 502(b)(9).................................................................................................................... 15

11 U.S.C. § 510(b) ................................................................................................................ 1, 9, 10

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Rules

Fed. R. Bankr. P. 2002 .................................................................................................................. 15

Fed. R. Bankr. P. 3003(c)(3)......................................................................................................... 15

Fed. R. Bankr. P. 5005 .................................................................................................................. 15

Fed. R. Bankr. P. 7023 ........................................................................................................... passim

Fed. R. Bankr. P. 7023.1 ............................................................................................................. 8, 9

Fed. R. Bankr. P. 7023.1(b) ............................................................................................................ 9

Fed. R. Bankr. P. 9007 .................................................................................................................. 15

Fed. R. Civ. P. 23 ................................................................................................................... passim

Fed. R. Civ. P. 23(c)(1)(A) ........................................................................................................... 14

Fed. R. Civ. P. 23.1 ......................................................................................................................... 8

L.B.R. 3003-1................................................................................................................................ 15

Rule 7023 and Rule 23.................................................................................................................... 9

Other Authorities

12 B W. Fletcher, Cyclopedia of the Law of Private Corporations, § 5911 (rev. 

perm. ed. 1984) ......................................................................................................................... 3

Cal. Practice Guide: Corporations, ¶ 6:604................................................................................... 4

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The Official Tort Claimants’ Committee (“TCC”) hereby files this opposition to the motion 

[Dkt. 5042] (the “Motion”) filed by the purported Securities Lead Plaintiffs (“Movants”) to apply 

Bankruptcy Rule 7023 to a class proof of claim asserted on behalf of a class of shareholders (the 

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

“Debtors”).

I.

INTRODUCTION

Under the terms of the Restructuring Support Agreement (“RSA”) between the TCC and 

the Debtors, and the Debtors’ related draft plan of reorganization (the “Plan”), claims against the 

Debtors’ former directors and officers are being assigned to the future Fire Victim Trust as part of 

the consideration that will fund payments to fire victims. This assignment will include claims such 

as those alleging that the negligence and breaches of fiduciary duties of the Debtors’ officers and 

directors caused substantial injury to the Debtors in the form of liabilities to injured fire victims 

and a reduction in the Debtors’ corporate value. 

The Motion seeking certification of the Putative Class concerns the same claims, which are 

property of the Debtors’ estates, and assigned to the Fire Victim Trust. 

Under unanimous California law, where the gravamen of a claim pursued by shareholders 

is injury to the corporation, or to the whole body of its stock, rather than discrete injury to individual 

holders of stock, the claim is a derivative claim that is property of the corporation. Such are the 

claims asserted by Movants in their District Court Action, styled In re PG&E Corporation 

Securities Litigation, Case No. 3:18-cv-03509-EJD (the “Securities Action”). Even if a direct claim 

could be found within Movants’ pending complaint, such a claim would be subject to mandatory 

subordination under the Debtors’ plan of reorganization and 11 U.S.C. § 510(b), to the level of 

other equity interests. 

The law is simple and unambiguous. Claims such as the derivative claims pleaded in the 

Securities Action, and the D&O insurance policies that cover such claims, are property of the 

estates. Any recoveries on account of such claims must be received by or for the benefit of the 

Debtors. The Fire Victim Trust, as the Debtors’ assignee of such claims, has a right to recover on 

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such claims that is superior to the subordinated claims of shareholders. The Motion should be 

denied because class certification would improperly permit a subordinated class to pursue for their 

own benefit claims that must be litigated for the benefit of a senior class.

Further, the Motion fails to satisfy the standards that apply to a Rule 23 motion in 

bankruptcy. The Motion has been filed before Movants have obtained class certification in the 

Securities Action. Yet even though it is premature by that standard, it is late-filed by bankruptcy 

standards, as it was filed seven weeks after the claims bar date expired, despite vigorous and 

contested proceedings concerning the Debtors’ notice program. Movants received notice of all 

pleadings filed in connection with noticing procedures, had already appeared in these cases, and 

had filed pleadings, yet chose to remain silent on noticing procedures that were designed to reach 

their constituency. Movants’ claims that the noticing procedures were insufficient to reach their 

Putative Class do not state grounds for class certification, particularly given their own silence while 

those noticing procedures were determined. The Motion does not satisfy the requirements for class 

certification in bankruptcy, and should be denied.

II.

ARGUMENT

A. The Securities Claims, at Their Core, Are Derivative Claims Owned by the Estates

Under the Restructuring Support Agreement (the “RSA”) between the Debtors, the TCC, 

and Consenting Creditors [Dkt. 5038], the Debtors are assigning to the Fire Victim Trust claims 

against former officers and directors. 

The Debtors have the authority to assign such claims to the Fire Victim Trust because claims 

against a debtor’s directors and officers for damage to a corporation, including a loss of value that 

results in a drop in stock value, are derivative claims that are property of the debtor’s estate. It is a 

general principle adopted across jurisdictions, including California and the Ninth Circuit, that a 

claim is derivative if the gravamen of the claim is damage to the corporation as a whole, and affects 

all stockholders in the same manner. See Sax v. World Wide Press, Inc., 809 F.2d 610, 613-14 (9th 

Cir. 1986) (shareholder claims for damage to corporate value were derivative claims, based on 

general rule that an action enforces a corporate right "if the gravamen of the complaint is injury to 

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the corporation, or to the whole body of its stock or property without any severance or distribution 

among individual holders.") (quoting 12B W. Fletcher, Cyclopedia of the Law of Private 

Corporations, § 5911 (rev. perm. ed. 1984)); Jones v. H. F. Ahmanson & Co., 1 Cal.3d 93, 106 

(1969) (“the action is derivative, i.e., in the corporate right, if the gravamen of the complaint is 

injury to the corporation, or to the whole body of its stock and property without any severance or 

distribution among individual holders, or it seeks to recover assets for the corporation or to prevent 

the dissipation of its assets.”) (quoting Gagnon Co., Inc. v. Nevada Desert Inn, Inc., 45 Cal.2d 448, 

453 (1955); Jackson v. Fischer, 2013 U.S. Dist. LEXIS 179233 *48, 2013 WL 6732872 (N.D. Cal. 

December 20, 2013) (“A suit must be maintained derivatively if the injury falls equally upon all 

stockholders”); Federal Land Bank v. Stiles, 700 F. Supp. 1060, 1066 (D. Mont. 1988) (following 

Sax to conclude that "Ordinarily, a shareholder may not bring a direct action for recovery of 

diminished stock value"); Fox v. Picard (In re Madoff), 848 F. Supp. 2d 469, 481 (S.D.N.Y. 2012) 

(“Because the claims asserted in the Florida Actions are general claims common to all BLMIS 

investors that are substantively duplicative of the Trustee's fraudulent transfer action, the 

Bankruptcy Court correctly found that the claims asserted in the Florida Actions were the property 

of the estate.”), aff’d Marshall v. Picard (In re Bernard L. Madoff Inv. Secs. LLC), 740 F.3d 81 (2d 

Cir. 2014); Geer v. Cox, 242 F.Supp. 2d 1009, 1018 (D. Kan. 2003) (Delaware law) ("The gravamen 

of plaintiff's complaint is injury to the corporation ... which must be asserted derivatively").

The Third Amended Complaint filed in the Securities Action (the “TAC”)1 purports to 

assert direct claims against the Debtors’ directors and officers under the Securities Exchange Act 

of 1934. The ultimate damage described in the TAC, however, is damage to PG&E’s corporate 

value due to devastating wildfires that were the result of “numerous and widespread violations of 

California safety regulations” and “PG&E’s failure to comply with even minimal legal 

requirements.” (TAC, ¶ 23). These violations, once allegedly discovered following devastating 

wildfires, lowered PG&E’s overall value, and correspondingly lowered the value of all 

shareholders’ interests, including the interests of Movants. 

 1 A copy of the TAC is attached to the Declaration of David J. Richardson filed herewith as Exhibit A.

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The TAC may cite to federal statutes as the basis for the pleaded claims, but citation to a 

statute within a pleading is not controlling as to its nature. “A claim asserted under § 14(a) of the 

SEA may be brought either as a direct or a derivative claim,” and whether that claim is “direct or 

derivative is governed by the law of the state of incorporation.” New York City Employees' Ret. 

Sys. v. Jobs, 593 F.3d 1018, 1022 (9th Cir. 2010) (citing J.I. Case Co. v. Borak, 377 U.S. 426, 431, 

84 S. Ct. 1555, 12 L. Ed. 2d 423 (1964)); see also In re VeriSign, Inc., Derivative Litig., 531 F. 

Supp. 2d 1173, 1188 (N.D. Cal. September 14, 2007) (noting that “[a]ll plaintiffs' claims in the 

present action,” including claims under Section 10(b) of the Securities Act alleging failure to 

disclose information in proxy statements, “are derivative” claims).

Because the Debtors are California corporations, California law determines whether the 

claims asserted by Movants are direct or derivative. New York City Employees' Ret. Sys. v. Jobs, 

593 F.3d at 1022. California law confirms that where the true nature of such claims is injury to the 

corporation, which results in a decline in equity value, the claims are derivative claims that are 

owned by the company:

Under California law, ‘a shareholder cannot bring a direct action for 

damages against management on the theory their alleged wrongdoing 

decreased the value of his or her stock (e.g., by reducing corporate 

assets and net worth). The corporation itself must bring such an 

action, or a derivative suit may be brought on the corporation's 

behalf.’ ...

An action is derivative if ‘the gravamen of the complaint is injury to 

the corporation, or to the whole body of its stock and property without 

any severance or distribution among individual holders, or it seeks to 

recover assets for the corporation or to prevent the dissipation of its 

assets.’ Shareholders may bring a derivative suit to, for example, 

enjoin or recover damages for breaches of fiduciary duty directors 

and officers owe the corporation. An individual cause of action exists 

only if damages to the shareholders were not incidental to damages to 

the corporation. Examples of direct shareholder actions include suits 

brought to compel the declaration of a dividend, or the payment of 

lawfully declared or mandatory dividends, or to enjoin a threatened 

ultra vires act or enforce shareholder voting rights.

Schuster v. Gardner, 127 Cal.App.4th 305, 313 (2005) (quoting H. F. Ahmanson & Co., 1 Cal.3d

at 106-07, and Friedman, Cal. Practice Guide: Corporations, ¶ 6:604, p. 6-128.2). By contrast, 

“[a] cause of action is individual, not derivative, only where it appears that the injury resulted from 

the violation of some special duty owed the stockholder by the wrongdoer and having its origins in 

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circumstances independent of the plaintiff's status as a shareholder.” Nelson v. Anderson, 72 Cal. 

App. 4th 111, 126-27 (1999).

The alleged damage to the Securities Plaintiffs in this case is “billions of dollars of 

economic value in the Company’s stocks and bonds” (TAC, ¶ 7), just as the damage to shareholders 

in Schuster was “diminution in stock value” that “was incidental to the injury to” the corporation, 

and therefore a derivative claim. Id., at 313. This is not a case where minority shareholders were 

denied rights by the majority shareholders, or where a Board of Directors deprived shareholders of 

a right to vote on a potential merger. This is an ordinary stock-drop case where negligence and 

breaches of fiduciary duty damaged the corporation’s overall net worth. Where a shareholder’s 

damages are “incidental” to damage to the company, “any recovery should go to the company.” Id. 

at 314. The TAC filed in the Securities Action alleges that “all purchasers of PG&E securities 

during the Class Period suffered similar injury ...” TAC, ¶ 461. The common nature of the shared 

injury is indicative of a derivative claim. See Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998)

(“Pareto's claims were for injury to Barbary Coast itself, which ultimately reduced the value of the 

stock. In other words, the action was ‘derivative, i.e., in the corporate right, [because] the gravamen 

of the complaint is injury to the corporation, or to the whole body of its stock or property without 

any severance or distribution among individual holders.’ ”) (quoting H. F. Ahmanson & Co., supra).

The Securities Plaintiffs allege in their TAC that the Debtor’s officers and directors 

misrepresented facts or failed to inform shareholders or the general public about facts that would 

have affected the price of the Debtors’ stock, or affected investment decision. For example:

• “PG&E’s above statement on May 31, 2017 gave investors a false impression that 

concealed safety risks would not imperil the Company’s dividend, which is 

precisely what occurred on December 20, 2017” (TAC, ¶ 243);

• “On this news that PG&E would likely bear at least some responsibility for the fires, 

PG&E’s stock dropped $4.65 per share ...” (TAC, ¶ 330);

• “The article ... continued to note that PG&E’s share price decline occurred ‘on 

concerns its power lines may have started the massive wildfires that have ravaged 

California recently.’ The article also repeated market commentary that the decline 

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in PG&E’s share price reflected investors’ understanding that PG&E was financially 

responsible for the North Bay Fires” (TAC, ¶ 331);

• “Though PG&E had previously intertwined safety, fires, and its dividend (see ¶232), 

investors were shocked by this unexpected suspension of the dividends due to 

Defendants’ intervening false reassurances of progress on safety and compliance 

with safety regulations” (TAC ¶ 341).

Merely styling allegations in the form “shareholders’ understanding” does not create a direct 

right of action, where the injury was felt by all shareholders, and therefore by the corporations. See

Jackson v. Fischer, 2013 U.S. Dist. LEXIS 179233 at *50-51, 2013 WL 6732872 (allegations that 

directors failed to report to “shareholders the material events impacting the companies, thereby 

concealing their mishandling of company assets” related to “mismanagement of corporate assets 

and to failure to comply with duties owed to the shareholders generally,” and therefore any “claim 

must be asserted derivatively.”).

The derivative nature of the claims pleaded in the TAC is determined by the “pivotal 

question” which asks “whether the injury is incidental to or an indirect result of a direct injury to 

the corporation or to the whole body of its stock or property.” Pareto, 139 F.3d at 699. The loss 

experienced by the Securities Plaintiffs arose because they were told the same misstatements that 

were communicated to the CPUC and the general public, and therefore they were unable to sell 

their stock before the truth was known. This is a derivative claim under Ninth Circuit and California 

authority. Pareto, 139 F.3d at 699 (“If a corporation suffers a direct injury to the whole of its assets, 

any corresponding injury to the value of an individual stockholder's shares (assuming the 

stockholder suffers no truly independent injury), is merely incidental to, or an indirect result of, the 

direct injury to the corporation's assets. An action by stockholders for that injury must be brought 

derivatively if at all.”). 

Just like the shareholder plaintiffs in Pareta, the Securities Plaintiffs allege “an injury that 

fell on every stockholder, majority and minority alike, and fell on each on a per share basis,” which 

is “clearly derivative.” Pareta, 139 F.3d at 700. See also Mieuli v. DeBartolo, 2001 U.S. Dist. 

LEXIS 22519, 2001 WL 777091 (N.D. Cal. May 7, 2001) (following Pareta on test for derivative 

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claims, finding injury was to the partnership where claims were “based on alleged mismanagement, 

conversion and self-dealing.”); Bader v. Anderson, 179 Cal. App. 4th 775, 788 (2009) (“In light of 

the directors' role in the operation of the business affairs of the corporation, where conduct, 

including mismanagement by corporate officers, causes damage to the corporation, it is the entity 

that must bring suit; the individual shareholder may not bring an action for indirect personal losses 

(i.e., decrease in stock value) sustained as a result of the overall harm to the entity.”); Smith v. 

Waste Mgmt. Inc., 407 F.3d 381, 385 (5th Cir. 2005) (“when a corporation, through its officers, 

misstates its financial condition, thereby causing a decline in the company's share price when the 

truth is revealed, the corporation itself has been injured.”); Neathery v. Rench, 2010 U.S. Dist. 

LEXIS 71192 *10, 2010 WL 2803984 (S.D. Ill. July 15, 2010) (“The shareholder must show, 

however, that the fraudulent inducement caused more harm than just devaluation in order to bring 

an individual suit. This is because the devaluation of stock is an indirect injury to the shareholders 

caused by a direct injury to the corporation and thus is derivative in nature.”) (internal citation to 

Pareto, supra, omitted).

Even if the alleged misstatements were intentional, the damage is still to the corporation, 

felt by all shareholders, and the resulting claim is derivative. Sax, 809 F.2d at 614 (“Even if the 

defendants depleted World Wide’s assets with the sole purpose of decreasing the value of Sax’s 

stock and destroying his return on his investment, the action would nonetheless be derivative”); see 

also LaSala v. Bordier et Cie, 519 F.3d 121, 129-30 (3d Cir. 2008) (When injury to the corporation 

is at issue, shareholders may not directly pursue a claim for aiding and abetting a breach of a 

fiduciary duty).

Thus, the Motion asks this Court to certify a class of shareholders to pursue derivative 

claims that are property of the Debtors’ estates.

B. Derivative D&O Claims Have Been Assigned to the Fire Victim Trust, Which Has 

Priority

Because the claims asserted in the Securities Action are derivative claims, any recovery that 

could be obtained from the defendants or their insurance policies must be paid to or for the benefit 

of the Debtors’ estates. Williams v. McGreevey (Touch Am. Holdings, Inc.), 401 B.R. 107, 121 fn. 

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26 (Bankr. D. Del. 2009) (“The alleged harm here - - loss of stock value - - is suffered by the 

corporation, and any recovery of that value should be for the benefit of the corporation.”); Bader v. 

Anderson, 179 Cal. App. 4th at 789 (“[T]he corporation is the ultimate beneficiary of such a 

derivative suit ...”) (quoting Klopstock v. Superior Court, 17 Cal.2d 13, 16–17 (1941)).

The Debtors’ right to recover such damages has been assigned by the Debtors’ estates to 

the Fire Victim Trust under the RSA, subject to confirmation of the Debtors’ proposed Plan of 

Reorganization. For this reason, any prosecution of the Securities Action by the Movants 

necessarily competes with the Fire Victim Trust for a recovery that must be paid in accordance with 

the terms of a confirmed Plan. And any request to accord class certification to all similarly situated 

equityholders presupposes a right of such equityholders to recover their damages from the Debtors, 

their directors and officers, or their respective insurers, when in fact their damages must be sought 

derivatively as a recovery for the benefit of the Debtors and their estates—assigned to the Fire 

Victim Trust. Class certification would improperly validate the incorrect claim that the Putative 

Class has a right to recover damages in their own right rather than derivatively on behalf of the 

estates. 

Derivative claims may be prosecuted only once. Prosecution or settlement of these claims 

by the Fire Victim Trust will extinguish the same claims brought by Movants in the Securities 

Action. In re Ionosphere Clubs, Inc., 17 F.3d 600, 604 (2d Cir. 1994) (finding that the bankruptcy 

estate representative's settlement of derivative claims with directors and officers "extinguishes" the 

shareholders' similar claims). Such successful prosecution or settlement of the estate’s derivative 

claims will maximize the value of such claims for the benefit of unsecured creditors whose claims 

are senior to the Putative Class, erasing any purpose that could be served by certification of the 

Putative Class.

C. The Requested Relief Requires a Finding that the TAC Pleads Direct Claims

The Motion seeks relief under Fed. R. Bankr. P. 7023, and corresponding F.R.C.P. 23. It 

does not request any relief under Fed. R. Bankr. P. 7023.1, nor corresponding F.R.C.P. 23.1. The 

former rules pertain to direct claims held by each member of the putative class, while the latter 

pertain to derivative claims. See F.R.C.P. 23 and 23.1.

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If this Court concludes that the claims pleaded in the TAC are derivative claims, then the 

Motion must be denied, as it was brought solely under Rule 7023 and Rule 23. The requirements 

for certification of a class under Rule 23.1 to pursue derivative claims are strict. The Complaint 

initiating the action “must be verified,” among other requirements, including a statement describing 

with particularity all of the efforts taken to induce the corporation to pursue the action on the 

company’s behalf. See Rule 23.1(b). Movants’ TAC is not a verified complaint, does not state any 

efforts taken to induce the Debtors to pursue the stated claims, and does not state that the Movants 

are seeking derivative relief, even though the claims themselves state classic stock-drop derivative 

claims (as briefed above). Thus, the Motion and the TAC fail on their face to satisfy any 

requirements, or request for relief, for class certification under Rule 23.1.

Because the Motion is based solely upon Rule 23, and upon the assertion that the Movants’ 

hold direct claims against the Debtors’ estate, the relief requested by Movants requires a finding 

that such claims are direct rather than derivative. For all of the reasons briefed above, the claims 

pleaded in the TAC are classic derivative claims that are property of the Debtors’ estates, and 

certification of a class under Rule 23 would be improper.

D. Even if the Securities Action Asserted Direct Claims, They Are Subordinated

Even if the claims asserted in the TAC could be characterized as direct claims against the 

Debtors, rather than derivative claims brought on behalf of the Debtors, subordination of such 

claims to the same level as other equity interests is mandatory under Section 510(b). See 

Liquidating Trust Comm. of the Del Biaggio Liquidating Trust v. Freeman (In re Del Biaggio), 834 

F.3d 1003 (9th Cir. 2016) (applying broad definition to claims “arising from the purchase or sale 

of such a security” language in Section 510(b)); American Broadcasting Systems, Inc. v. Nugent 

(In re Betacom of Phoenix, Inc.), 240 F.3d 823, 829-31 (9th Cir. 2001) (claims for breach of 

agreement for sale of securities were subject to mandatory subordination to level of other equity 

interests, even if equity interest was never acquired); Pensco Trust Co. v. Tristar Esperanza Props., 

LLC (In re Tristar Esperanza Props., LLC), 782 F.3d 492 (9th Cir. 2015) (following Betacom, 

claim for breach of contract arising from agreement for sale of securities was subordinated below 

unsecured claims by Section 510(b)); Orange County Nursery, Inc. v. Minority Voting Trust (In re 

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Orange County Nursery Inc.), 523 B.R. 692 (C.D. Cal. 2014) (following Betacom, explaining that 

what matters is the "type of claim possessed," as opposed to the type of claimant); In re Enron 

Corp., 341 B.R. 141, 159 (Bankr. S.D.N.Y. 2006) (claim brought under Securities Exchange Act 

of 1934 for retention of overvalued stock based on misrepresentations and fraud was subject to 

mandatory subordination).

This outcome is the same regardless of whether the Movants argue that their claims arise 

from the acquisition of overvalued stock, or the retention of overvalued stock based upon 

misrepresentations. See In re Enron Corp., 341 B.R. at 157-58 (“The Claimants have not offered, 

nor has the Court discovered elsewhere, a cogent argument that would justifiably distinguish 

between fraudulent inducement and fraudulent retention claims for the purposes of section 510(b). 

As just suggested, these are functionally, even if not formally, identical claims that both arise in 

connection with the performance of the Debtor's stock.”).

Such a rule is necessary to protect the interests of unsecured creditors, and uphold the intent 

of the absolute priority rule. In re THC Financial Corp., 679 F.2d 784, 785-87 (9th Cir. 1982) 

(Bankruptcy Act) (claims of equityholders were subject to subordination as “required” by absolute 

priority rule); In re Granite Partners, L.P., 208 B.R. 332 (Bankr. S.D.N.Y. 1997) (following THC 

Financial, subordinating shareholder claims that debtors fraud induced them to retain overvalued 

equity interests, as an “contrary ruling would eviscerate the absolute priority rule, and shift to 

creditors the investment risk assumed by the [equityholders]”).

Even if this Court were to find that the Movants have alleged direct claims against the 

Debtors’ directors and officers for actions and omissions that specifically targeted and injured the 

stock of the Putative Class, those direct claims must be subordinated. Yet the primary recovery 

that is likely to be realized from such claims will be insurance proceeds that are property of the 

estate—the same insurance proceeds that should be paid in satisfaction of claims of unsecured 

creditors such as fire victims before reaching subordinated equityholders.

Most courts concur that a debtor’s D&O insurance policies, and the proceeds to be 

recovered therefrom, are property of a debtor’s estate, just like the derivative claims that give rise 

to such a recovery of damages. See In re Wash. Mut., Inc. Sec., 2010 U.S. Dist. LEXIS 152260 

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*45, 2010 WL 11591389 (W.D. Wash. February 17, 2010) (policies and proceeds of D&O policies 

are property of debtor’s estate); Metro. Inv. Sec., Inc. v. Cauvel (In re Metro. Mortg. & Sec. Co.), 

325 B.R. 851, 857 (Bankr. E.D. Wash. 2005) (debtor’s D&O policies and proceeds are property of 

the estate, enjoining litigation against the proceeds); PHP Healthcare Corp. v. HIP Foundation, 

Inc. (In re PHP Healthcare Corp.), 1999 Bankr. LEXIS 2047 *5-8 (Bankr. D. Del. March 31, 1999)

(finding that policy that provides "entity coverage in addition to director and officer coverage" is 

property of the estate); In re Vitek, 51 F.3d 530 (5th Cir. 1995) (where "a debtor corporation's 

liability policies provide the debtor and thus the estate with direct coverage against third party 

claims, virtually every court to have considered the issue has concluded that the policies -- and 

clearly the proceeds of those policies -- are part of debtor's bankruptcy estate, irrespective of 

whether those policies also provide liability coverage for the debtor's directors and officers."); 

Louisiana World Exposition, Inc. v. Fed. Insurance Co.(In re Louisiana World Exposition, Inc.), 

832 F.2d 1391, 1399-1400 (5th Cir. 1987) (where policies provide "coverage for judgments against 

or losses of the bankrupt corporation itself ... the estate owns not only the policies, but also the 

proceeds designated to cover corporate losses or liability"); In re Sacred Heart Hosp., 182 B.R. 

413, 419-20 (Bankr. E.D. Pa. 1995) ("the Debtor's own liability exposure is also covered by the 

D&O Policy ... the Debtor is indeed an insured and has a sufficient interest in the Proceeds as a 

whole to bring them into the estate"). 

Even where a debtor is not named as an Insured, the existence of a duty to indemnify insured 

officers and directors is sufficient to bring the proceeds of the policies into the estate. In re Jasmine, 

Ltd., 258 B.R. 119, 128 (D. N.J. 1999) ("Jasmine had an indemnification interest in the proceeds, 

and the proceeds are property of the estate and subject to the authority of the trustee under these 

circumstances"); In re Sacred Heart Hosp., 182 B.R. at 420 (“an indemnification interest in 

proceeds is sufficient to bring those proceeds into the estate”); In re PHP, 1999 Bankr. LEXIS 2047 

*5-6 (obligation to indemnify officers and directs supports finding that policy proceeds are property 

of estate). 

Although this Opposition brief does not request injunctive relief at this time, and the Motion 

would not be the proper proceeding in which such relief would be considered, its should be noted 

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that the TCC or future Fire Victim Trust has grounds to seek injunctive relief to bar the Securities 

Action from proceeding in any manner that could deplete the Debtors’ D&O insurance policies 

unless and until the Fire Victim Trust has recovered all funds that it may obtain from successful 

prosecution or settlement of its assigned D&O claims. See Fox v. Picard (In re Madoff), 848 F. 

Supp. 2d 469, 488 (S.D.N.Y. 2012) (affirming injunction of derivative investor litigation that was 

duplicative of claims belonging to trustee), aff’d Marshall v. Picard (In re Bernard L. Madoff Inv. 

Secs. LLC), 740 F.3d 81 (2d Cir. 2014); Cottonwood P’ship, L.L.P. v. Kivisto (In re SemCrude 

L.P.), 2012 U.S. Dist. LEXIS 163236 *22, 2012 WL 5554819 (D. Del. November 15, 2012)

(confirming court’s jurisdiction to consider motion to enjoin shareholder claims against debtor’s 

accounting firm where injuries were to the corporation, and claims belonged to bankruptcy estate); 

In re Metro. Mortg. & Sec. Co., 325 B.R. at 857 (enjoining litigation to recover from debtor’s D&O 

policy proceeds); Meglolia v. Maxwell, 293 B. R. 443, 449 (N. D. Ill. 2003) (enjoining shareholders 

to permit trustee to first pursue derivative claims and recover from insurance policies). This would 

be the proper outcome even if this Court were to find that the claims pleaded in the TAC are direct 

claims. See Fisher v. Apostolou, 155 F.3d 876, 882 (7th Cir. 1998) (“In limited circumstances, the 

trustee may temporarily block adjudication of claims that are not property of the estate by 

petitioning the bankruptcy court to enjoin the other litigation, if it is sufficiently ‘related to’ her 

own work on behalf of the estate.”). Where, as here, the purpose of the Debtors’ assignment of 

derivative D&O claims is to provide value to a class of unsecured creditors under a plan of 

reorganization, the absolute priority rule would compel the enjoining of shareholder litigation that 

seeks to recover the same insurance proceeds.

The Motion demonstrates that the Movants seek to form a Putative Class that will assert 

classwide derivative claims against the Debtors’ estates, covered by insurance that is property of 

the Debtors’ estates, and in competition with identical claims assigned to the Fire Victim Trust. 

Even if the Motion were granted on the understanding that any Putative Class would be subordinate 

to the claims of fire victims, the resulting competition for insurance proceeds would harm 

unsecured creditors and improperly benefit equityholders, in violation of the absolute priority rule.

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The Motion seeks relief that is contrary to the terms of the Debtor’s draft plan of 

reorganization, contrary to federal bankruptcy law, and contrary to California law. It should be 

denied.

E. The Motion Fails to Satisfy the Rule 23 and Musicland Standards

Even if the claims asserted in the TAC could be deemed direct, and even if such shareholder 

litigation did not compete with the interests of unsecured creditors in violation of the absolute 

priority rule, the Motion is untimely and fails to satisfy the standards that apply to a motion for 

class certification in bankruptcy.

1. Rule 23 and the Musicland Standards

The authority to permit a class proof of claim in a bankruptcy case falls within the discretion 

of the court, and there is no right to such certification. See Gentry v. Circuit City Stores, Inc. (In 

re Circuit City Stores, Inc.), 439 B.R. 652, 658 fn. 6 (E.D. Va., Oct. 29, 2010) (“Hence, it is well 

within the discretion of the bankruptcy judge to determine whether or not to apply Rule 7023.”); In 

re Computer Learning Centers, Inc., 344 B.R. 79, 85-86 (Bankr. E.D. Va. 2006) (“although class 

proofs of claim may be permitted, they are not a matter of right.”); In re Bally Total Fitness of 

Greater N. Y., 402 B.R. 616, 619 (Bankr. S.D.N.Y. 2009) ("There is no absolute right to file a class 

proof of claim under the Bankruptcy Code") aff'd 411 B.R. 142, 145 (S.D.N.Y. 2009).

Class certification in bankruptcy does not parallel the process in ordinary civil litigation. 

Rather, “bankruptcy significantly changes the balance of factors to be considered in determining 

whether to allow a class action and ... class certification may be ‘less desirable in bankruptcy than 

in ordinary civil litigation.’” In re Ephedra Prods. Liab. Litig., 329 B.R. 1, 5 (S.D.N.Y. 2005) 

(quoting In re American Reserve Corp., 840 F.2d 487, 493 (7th Cir. 1988)). One court has held 

that, in order to address “concerns peculiar to bankruptcy law” that are raised by a Rule 23 motion 

filed before class certification in the underlying action, a court should consider “prejudice to the 

debtor or its other creditors, prejudice to putative class members, efficient estate administration, 

the conduct in the bankruptcy case of the putative class representatives, and the status of 

proceedings in other courts.” In re Craft, 321 B.R. 189, 198-99 (Bankr. N.D. Tex. 2005).

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Courts have since developed a three-factor framework to guide the exercise of this 

discretion:

1) whether the class was certified pre-petition;

2) whether the members of the putative class received notice of the 

bar date; and

3) whether class certification will adversely affect the 

administration of the estate.

In re Verity Health Sys. of Cal., 2019 Bankr. LEXIS 1818 *23, 2019 WL 2461688 (Bankr. C.D. 

Cal. June 11, 2019) (quoting In re Chaparral Energy, Inc., 571 B.R. 642, 646 (Bankr. D. Del. 

2017). These factors are often referred to as the Musicland factors, derived from the case In re 

Musicland Holding Corp., 362 B.R. 644, 651 (Bankr. S.D.N.Y. 2007), and they are widely applied 

by courts.

2. The Motion Fails to Satisfy the First Musicland Factor, as It Precedes Class 

Certification

The Motion fails to satisfy the first Musicland factor. Movants filed the Securities Action

eighteen months ago, but they have neither sought nor obtained class certification in the District 

Court, even though Rule 23 requires that a class action determination must be made at “an early 

practicable time.” See Fed. R. Civ. P. 23(c)(1)(A). 

Movants claim in the Motion that it “was impossible” to seek certification before the District 

Court because a motion to dismiss is pending. Motion at p. 17:14-15. But the Ninth Circuit has 

held the opposite, holding that while “in some cases, it may be appropriate in the interest of judicial 

economy to resolve a motion for summary judgment or motion to dismiss prior to ruling on class 

certification,” the District Court “should decide the class certification motion before proceeding 

further.” Wade v. Kirkland, 118 F.3d 667, 671 (9th Cir. 1997); Woods v. Google LLC, 2018 U.S. 

Dist. LEXIS 143879 *32, 2018 WL 4030570 (N.D. Cal. August 23, 2018) (following Wade, and 

noting “courts routinely hear class certification motions first”). Even if a pending motion to dismiss 

in the District Court somehow prevented Movants from seeking class certification in that court, it 

did not prevent them from seeking certification in this Court, as demonstrated by the simple fact 

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that they have now filed their Motion in this Court while the motion to dismiss remains pending in 

the Securities Action.

Movants waited until after the passage of the Claims Bar Date to file their first classcertification Motion—in this Court rather than in District Court—at a time when the Debtors are 

ensconced in plan negotiations and attempting to address a strict legislative deadline. Such conduct 

favors denial of the Motion. In re Verity Health Sys. of Cal., 2019 Bankr. LEXIS 1818 at *23 (“The 

putative class was not certified prepetition, so the first Musicland factors weighs against applying 

Civil Rule 23 to the claims administration process”); In re Craft, 321 B.R. at 191 and 199 (denying 

Rule 7023 motion filed by claimants without prior class certification, and filed while debtor was 

busily “negotiating with various parties in an effort to formulate a plan or plans of reorganization”).

Delay is not a minor issue, particularly in a case such as these which are being driven by an 

unforgiving legislated deadline. In re Woodward & Lothrop Holdings, Inc., 205 B.R. 365, 370 

(Bankr. S.D.N.Y. 1997) (In bankruptcy, a “delay may impact the entire case – not just the affected 

claim – and provides grounds for a bankruptcy court to refuse to make Rule 23 applicable to the 

claims process. As the case in chief moves toward its conclusion, it is more likely that a delay in 

resolving the certification issue will interfere with the administration of the estate.”) (citing In re 

Thomson McKinnon Secs., Inc., 150 Bankr. 98, 101 (Bankr. S.D.N.Y. 1992)); see also Bailey v. 

Jamesway Corp. (In re Jamesway Corp.), 1997 Bankr. LEXIS 825, 1997 WL 327105, *10 (Bankr. 

S.D.N.Y. June 12, 1997) (noting that in the absence of pre-petition certification, class members 

lacked “reasonable expectation” that they did not have to comply with the bar date).

There is no cause to justify the lateness of the Motion, nor the failure to seek prior class 

certification in the Securities Action. Counsel for Movants filed an initial notice of appearance in 

these cases on March 29, 2019 [Dkt. No. 1126]. Movants filed their first substantive brief on April 

17, 2019 [Dkt. No. 1479] in connection with a fee application filed counsel for the Debtors’ insider 

defendants in the Securities Action. Movants were active participants in these cases, and on notice 

of all pleadings filed, by April 2019. 

On May 1, 2019, the Debtors filed their Motion of Debtors Pursuant to 11 U.S.C. §§ 

502(b)(9) and 105(a), Fed. R. Bankr. P. 2002, 3003(c)(3), 5005, and 9007, and L.B.R. 3003-1 for 

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Order (I) Establishing Deadline for Filing Proofs of Claim, (II) Establishing the Form and Manner 

of Notice Thereof, and (III) Approving Procedures for Providing Notice of Bar Date and Other 

Information to All Creditors and Potential Creditors [Dkt. No. 1784] (the “Bar Date Motion”). The 

Bar Date Motion, among other relief requested, asked this Court to establish a bar date of October 

21, 2019 (the “Claims Bar Date”), and to establish rigorous notice procedures to ensure that 

creditors received notice of the Claims Bar Date. 

At least sixteen objections, joinders, or other such pleadings were filed in response to the 

Bar Date Motion. See Dkt. Nos. 2043, 2238, 2239, 2240, 2242, 2248, 2256, 2306, 2307, 2308, 

2316, 2321, 2324, 2326, 2346, and 2453. Movants did not file any response to the Bar Date Motion, 

and took no position on the sufficiency of the Debtors’ proposed noticing program to reach the 

members of their purported constituency. Movants were aware of the Claims Bar Date from the 

moment it was established by this Court. They were aware of the Debtors’ notice program the 

moment it was approved, and while it was debated. They knew that their putative class had not yet 

been certified in the Securities Action. And they waited until now, after passage of the Claims Bar 

Date, as the case is hurtling towards plan confirmation, to seek certification of a class proof of 

claim. Movants have been dilatory in filing the Motion in this Court. See In re Associated Cmty. 

Servs., 520 B.R. 650, 658 (Bankr. E.D. Mich. 2014) (“The time to get class certification was before 

filing the proof of claim on behalf of the putative class. And there was ample time for him to do so. 

A timely filed motion could have been heard, responded to and adjudicated by the Court in 

sufficient time to inform Pepper as to whether he had the requisite authority to even file a class 

action proof of claim.”); In re Sacred Heart of Norristown, 177 B.R. 16, 23 (Bankr. E.D. Pa. 1995) 

(“The most propitious time for filing a motion for class recognition is before a bar date is 

established”); In re Casimiro, 2007 Bankr. LEXIS 1926 *16 (Bankr. E.D. Cal. May 31, 2007) (“The 

named claimants must timely move for certification of the class.”).

The first Musicland factor is not met, both because the Movants failed to obtain class 

certification prior to filing their Motion in this Court, and because they have filed their Motion in 

an untimely manner. 

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3. The Motion Fails to Satisfy the Second Musicland Factor, as the Debtors’ 

Notice Program Was Sufficient

The second Musicland factor looks to whether members of the Putative Class received 

notice of the Claims Bar Date. In re Verity Health Sys. of Cal., 2019 Bankr. LEXIS 1818 at *23.

As briefed above, the Debtors’ Bar Date Motion was heavily litigated before this Court. 

Despite receiving notice of the Bar Date Motion and each objection/joinder thereto, Movants did 

not file any brief in this Court requesting changes to the Debtors’ proposed noticing program in 

order to increase the likelihood that notice would be received by all members of their Putative 

Class. Now, by their Motion, Movants complain that the Debtors’ noticing program was 

insufficient to reach current or former equityholders who purportedly form part of the Putative 

Class.

In an earlier proceeding, the Debtors filed evidence demonstrating that their supplemental 

notice plan provided constructive notice that reached over 730,000,000 impressions (i.e., 

opportunities to see the notice of the Claims Bar Date). See Dkt. No. 4684, pp. 6-7. Movants argue, 

however, that this reach was insufficient because the Debtors’ noticing program did not provide 

actual notice of the purported securities claims that current or former equityholders might assert 

against the Debtors’ estate. But notice of the bar date, alone, is sufficient for due process 

requirements. There is no requirement that such notice include specific notice of potential claims 

that might be held by a creditor, such as the claims asserted in the Securities Action. Notice of the 

existence of a bar date places the onus on creditors to investigate their potential claims. See 

Rodriguez v. Tarragon Corp. (In re Tarragon Corp.), 2010 Bankr. LEXIS 3410 (Bankr. D. N.J. 

September 24, 2010) (mere notice of claims bar date was sufficient notice for putative class 

members, “they had an opportunity to investigate and pursue potential individual claims and did 

not do so.”).

The Debtors’ notice program was more than sufficient to reach potential equityholders who 

might believe that they hold securities claims against the Debtors. To whatever extent 

equityholders have not filed such claims, it is likely due to a recognition by such equityholders that 

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a loss in stock value felt equally by all equityholders does not create an individual claim for 

recovery from the Debtors’ estate.

The second Musicland factor is not satisfied by the Motion.

4. The Motion Fails to Satisfy the Third Musicland Factor, as Class Certification 

Would Adversely Affect Administration of these Bankruptcy Cases

The third Musicland factor—whether class certification would adversely affect 

administration of the cases—involves many issues. One addressed frequently by courts is the 

timeliness of the Rule 23 motion, or lack of timeliness, with respect to the proceedings in the 

bankruptcy case, as adverse effects to the administration of the case are “exacerbated” by a delayed 

motion. Musicland, 363 B.R. at 656. A bankruptcy court “may decline to apply Rule 23 if doing 

so would . . . gum up the works of distributing the estate.” In re Ephedra, 329 B.R. at 5 (internal 

citation omitted).

As has been briefed above, Movants have been on notice since May 1, 2019, that the Debtors 

intended a notice program of the scope that was subsequently approved by this Court, and Movants 

did nothing. Movants have been able to pursue the Securities Action against the non-debtor and 

individual defendants, unhindered by the automatic stay, but have failed to seek class certification 

from the District Court. Movants were aware since May 2019 that the Claims Bar Date in this case 

was October 21, 2019, but they failed to file their Motion until after passage of the Claims Bar 

Date. And, most critically, Movants have been aware for at least six months of AB 1054’s timing 

requirements for confirmation of the Debtors’ plan of reorganization, yet they have failed to pursue 

timely relief in this Court, or in the District Court. The delay in filing the Motion until after the 

Claims Bar Date and after substantial proceedings in these cases favors denial of the Motion. In re 

Computer Learning Centers, Inc., 344 B.R. 79, 86 (Bankr. E.D. Va. 2006) (“A Rule 7023 motion 

should be filed as soon as practicable and should be denied if it comes so late as to prejudice any 

party”); Craft, 321 B.R. at 199 (allowing class claim would delay plan process and claim objection 

process); Woodward & Lothrop, 205 B.R. at 370 ("As the case moves toward its conclusion, it is 

more likely that a delay in resolving the certification issue will interfere with the administration of 

the estate"); In re Sacred Heart of Norristown, 177 B.R. at 24 (granting the motion would "effect 

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very substantial and apparently unwarranted disruption to the administration of the Debtor's 

bankruptcy case, in which there is presently a plan before us for imminent confirmation").

The Debtors’ have filed several versions of their proposed plan of reorganization, and will 

shortly file a proposed disclosure statement in an effort to meet the fast-approaching deadline of 

AB 1054. The administration of these cases is no ordinary matter, but involves the administration 

of tens of billions of dollars in claim value, on behalf of nearly a hundred thousand creditors. The 

added complication of a securities class proof of claim, and the necessary proceedings that it will 

entail prior to plan confirmation, will adversely affect the plan confirmation process. See In re 

Bally Total Fitness of Greater N.Y., Inc., 402 B.R. 616, 621 (Bankr. S.D.N.Y. 2009) (denying Rule 

7023 motion where “class certification would adversely affect the administration of these cases 

adding layers of procedural and factual complexity that accompany class-based claims, siphoning 

the Debtors' resources and interfering with the orderly progression of the reorganization.”); In re 

Ephedra, 329 B.R. at 5 (“[A] bankruptcy case can proceed no faster than its slowest matter . . . and 

a class action may gum up the works because until complete, the bankruptcy court cannot determine 

the entitlement of other creditors.”) (internal citation omitted).

Movants cannot point to the order entered by the District Court according them status as 

Lead Plaintiff and claim that it rescues them from dilatory behavior in these cases, as such an order 

has no meaning or effect in this Court. See Lucas v. Dynergy Inc. (In re Dynegy Inc.), 2013 U.S. 

Dist. LEXIS 78479 *20, 2013 WL 2413482 (S.D.N.Y. June 4, 2013) (“Lead Plaintiff Order” 

entered in putative class action case “did not provide the appellant with standing in the Bankruptcy 

Court” to represent the putative class, and “would not bind the Bankruptcy Court to allow the 

appellant to represent the same putative class in the Bankruptcy Court.”).

Dilatory behavior in any chapter 11 case will often deprive a party of rights that it might 

otherwise enjoy. But in these cases, where extraordinary efforts have been made to bridge 

substantial differences, address nearly a hundred thousand claims seeking tens of billions of dollars, 

and cobble together support for a complex plan of reorganization that must be confirmed by a fixed 

deadline, the delays of Movants in filing their Motion cannot be overlooked. The adverse effects 

on administration of these cases are not addressed by resolution of the Motion. The relief that is 

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sought by the Motion would only be the beginning. In re Ephedra, 329 B.R. at 5 (“since class 

litigation is inherently more time-consuming than the expedited bankruptcy procedure for resolving 

contested matters, class litigation would have to be commenced at the earliest possible time to have 

a chance of being completed in the same time frame as the other matters that must be resolved 

before distributing the estate.”).

Any prejudice that equityholders could claim upon denial of the Motion is a product of 

Movants’ delay. But such prejudice would be illusory given that the claims of the Putative Class 

are, at their core, derivative claims that must be pursued for the benefit of the estate. Every dollar 

that Securities Plaintiffs may manage to recover from the Debtors’ D&O insurance policies through 

their Securities Action is a dollar that will not be recovered by the Fire Victim Trust for the benefit 

of fire victims, as intended by the Debtors’ proposed plan of reorganization, and as required by 

applicable law. A balancing of such prejudice leans in favor of fire victims, as class certification 

would violate the absolute priority rule, violate California law, and violate the intended purpose of 

Rule 23/7023. See In re Quick Cash, Inc., 2015 Bankr. LEXIS 3852 *31 (Bankr. D. N.M. 

November 10, 2015) (requiring a balancing of “the potential prejudice to other creditors and 

potential benefit to members of the class or putative class”); In re Computer Learning, 344 B.R. at 

94 (concluding that delayed filing of untimely Rule 23 motion “unduly prejudices the estate and its 

other creditors”).

The Motion fails to satisfy the third Musicland factor.

III.

CONCLUSION

It is without dispute that the value of PG&E stock declined after the devastating wildfires 

of 2017 and 2018. And while the TCC and Movants may disagree on much, they appear to agree 

that negligence and breaches of fiduciary duties by the Debtors’ directors and senior officers played 

a direct role in the causation of such fires. The primary disagreement is whether the corporations’ 

value as a whole, or the value of stock held by certain individual equity holders in particular, were 

damaged by the actions and omissions of such defendants. 

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The claims alleged by Movants in their TAC are classic derivative claims for a stock drop 

experienced equally by all shareholders, which occurred as a result of fires that devastated the lives 

and assets of fire victims. Un the Debtor’s draft plan of reorganization and principles of federal 

bankruptcy law, those fire victims have a superior right to recover assets of the estate—including 

insurance proceeds—before equityholders may obtain a recovery on their claims. The relief sought 

by the Motion would violate that prior right, and violate the absolute priority rule, by furthering the 

efforts of Movants to reach insurance proceeds that are property of the Debtors’ estates and are 

being assigned to the Fire Victim Trust under the Debtors’ proposed plan of reorganization.

Even absent such issues of equity, the Motion fails to satisfy the Musicland standards for 

approval of a class in a bankruptcy case, and should be denied for that reason alone.

For all of the reasons argued herein, the TCC respectfully requests that this Court deny the 

Motion.

Dated: January 14, 2020 BAKER & HOSTETLER LLP

By: /s/ David J. Richardson 

Robert A. Julian

Cecily A. Dumas

David J. Richardson

Counsel to the Official Committee of Tort Claimant

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