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WEIL, GOTSHAL & MANGES LLP 

Stephen Karotkin (pro hac vice) 

(stephen.karotkin@weil.com) 

Ray C. Schrock, P.C. (pro hac vice) 

(ray.schrock@weil.com) 

Jessica Liou (pro hac vice) 

(jessica.liou@weil.com) 

Matthew Goren (pro hac vice) 

(matthew.goren@weil.com) 

767 Fifth Avenue 

New York, NY 10153-0119 

Tel: 212 310-8000 

Fax: 212 310-8007 

KELLER & BENVENUTTI LLP 

Tobias S. Keller (#151445) 

(tkeller@kellerbenvenutti.com) 

Jane Kim (#298192) 

(jkim@kellerbenvenutti.com) 

650 California Street, Suite 1900 

San Francisco, CA 94108 

Tel: 415 496-6723 

Fax: 650 636-9251 

Attorneys for Debtors 

and Debtors in Possession

WILLKIE FARR & GALLAGHER LLP 

Matthew A. Feldman (pro hac vice) 

(mfeldman@willkie.com) 

Joseph G. Minias (pro hac vice) 

(jminias@willkie.com) 

Benjamin P. McCallen (pro hac vice) 

(bmccallen@willkie.com) 

Daniel I. Forman (pro hac vice) 

(dforman@willkie.com) 

787 Seventh Avenue 

New York, NY 10019-6099 

Tel: 212 728-8000 

Fax: 212 728-8111 

DIEMER & WEI, LLP 

Kathryn S. Diemer (#133977) 

(kdiemer@diemerwei.com) 

100 West San Fernando Street, Suite 555 

San Jose, CA 95113 

Tel: 408 971-6270 

Fax: 408 971-6271 

Counsel for Ad Hoc Group of Subrogation 

Claim Holders 

UNITED STATES BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

In re: Bankruptcy Case 

No. 19-30088 (DM)

PG&E CORPORATION, Chapter 11

(Lead Case)

- and - (Jointly Administered)

PACIFIC GAS AND ELECTRIC DEBTORS’ AND AD HOC 

COMPANY, SUBROGATION GROUP’S JOINT BRIEF

IN SUPPORT OF THE SUBROGATION 

Debtors. WILDFIRE CLAIMS AS IMPAIRED 

CLASSES FOR ALL PURPOSES UNDER 

☐ 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). 

THE DEBTORS’ JOINT CHAPTER 11 

PLAN OF REORGANIZATION

Date: January 14, 2020

Time: 10:00 a.m. (Pacific Time)

Place: United States Bankruptcy Court

Courtroom 17, 16th Floor

San Francisco, CA 94102

Opposition Deadline: December 20, 2019

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

as debtors and debtors in possession (collectively, the “Debtors”) in the above-captioned chapter 

11 cases (the “Chapter 11 Cases”), and the Ad Hoc Group of Subrogation Claim Holders (the “Ad 

Hoc Subrogation Group”) respectfully submit the Debtors’ and Ad Hoc Subrogation Group’s 

Joint Brief in Support of the Subrogation Wildfire Claims as Impaired Classes for All Purposes 

Under the Debtors’ Joint Chapter 11 Plan of Reorganization. As demonstrated below, the classes 

of Subrogation Wildfire Claims (as defined below), which consist of asserted claims in excess of 

$20 billion that are to be settled and allowed under the Subrogation Claims Settlement (as defined 

below) at an approximately 45% discount, and are to be treated in accordance with the terms and 

subject to confirmation and consummation of the Debtors’ Joint Chapter 11 Plan of Reorganization 

Dated November 4, 2019 (as may be further amended, modified, or supplemented from time to time, 

the “Debtors’ Plan”)1 are “impaired” within the meaning of sections 1123(a)(3) and 1124 of title 

11 of the United States Code (the “Bankruptcy Code”) for all purposes under the Debtors’ Plan. 

As impaired classes, the Subrogation Wildfire Claimants (as defined below), among other things, 

are entitled to vote on the Debtors’ Plan. 

1

 Capitalized terms used but not otherwise herein defined have the meanings ascribed to such terms 

in the Debtors’ Plan. 

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TABLE OF CONTENTS 

Page 

MEMORANDUM OF POINTS AND AUTHORITIES ...................................................................6 

I. PRELIMINARY STATEMENT .............................................................................................6 

II. JURISDICTION ......................................................................................................................7 

III. BACKGROUND .....................................................................................................................7 

IV. THE SUBROGATION WILDFIRE CLAIMS ARE IMPAIRED AND THE 

SUBROGATION WILDFIRE CLAIMANTS ARE ENTITLED TO VOTE. ......................10 

A. The Subrogation Wildfire Claims Are Impaired Because the Settlement and 

Treatment of the Allowed Claim Amount are Tied to Confirmation and 

Consummation of the Debtors’ Plan. .........................................................................12 

B. The Subrogation Classes are Impaired Because the Debtors’ Plan Channels 

Distributions for Allowed Subrogation Wildfire Claims to the Subrogation Wildfire 

Trust. ..........................................................................................................................14 

C. The Debtors’ Plan Impairs the Subrogation Classes Because the Plan Does Not 

Provide For the Payment of Postpetition Interest on the Allowed Claim Amount to 

the Holders of Subrogation Wildfire Claims. ............................................................15 

D. The Subrogation Classes are Impaired by the Post-Effective Date Delay in 

Distributions to Holders of Subrogation Wildfire Claims Under the Debtors’ Plan. 16 

V. CONCLUSION ......................................................................................................................17 

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TABLE OF AUTHORITIES 

 Page(s) 

Cases 

In re Art & Architecture Books of the 21st Century, 

No. 2:13-bk-14135-RK, 2016 WL 1118743 (Bankr. C.D. Cal. March 18, 2016) ......................12 

Bustop Shelters of Louisville v. Classic Homes, Inc., 

914 F.2d 810 (6th Cir. 1990) ................................................................................................ 14-15 

In re Carolina Tobacco Co., 

Case No. BR 05-34156-ELP11, 2006 WL 7074335 (Bankr. D. Or. March 14, 2006) aff’d, 360 

B.R. 702 (D. Or. 2007), and vacated on consent, No. APPEAL 06-1170-KI, 2012 WL 

12527885 (D. Or. Feb. 22, 2012) .......................................................................................... 12-13 

Conn. Gen. Life Ins. Co. v. Hotel Assocs. of Tucson (In re Hotel Assocs. of Tucson), 

165 B.R. 470 (B.A.P. 9th Cir. 1993)...........................................................................................16 

In re Great Barrington Oaks Gen. P’ship, 

15 B.R. 952 (Bankr. D. Utah 1981) ............................................................................................14 

Great W. Bank & Tr. v. Entz-White Lumber & Supply, Inc. (In re Entz-White Lumber & Supply, 

Inc.), 

850 F.2d 1338 (9th Cir. 1988) ....................................................................................................10 

In re Julian Servs. Indus., Inc., 

220 B.R. 613 .........................................................................................................................12, 13 

Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.), 

843 F.2d 636 (2d Cir. 1988)........................................................................................................15 

L & J Anaheim Assocs. v. Kawasaki Leasing Int’l, Inc. (In re L & J Anaheim Assocs.), 

995 F.2d 940 (9th Cir. 1993) ..........................................................................................11, 12, 14 

In re Lower Bucks Hosp., 

471 B.R. 419 (Bankr. E.D. Penn. 2012) .....................................................................................12 

In re NNN 3500 Maple 26, LLC, 

No. 13-30402-HDH-22 2014, WL 1407320 (Bankr. N.D. Tex. 2014) ......................................14 

Onink v. Cardelucci (In re Cardelucci), 

285 F.3d 1231 (9th Cir. 2002) ....................................................................................................16 

Oxford Life Ins. Co. v. Tucson Self-Storage (In re Tucson Self-Storage), 

166 B.R. 892 (B.A.P. 9th Cir. 1994)...........................................................................................16 

In re Rexford Prop. LLC, 

558 B.R. 352 (Bankr. C.D. Cal. 2016) ........................................................................................11 

In re Save Our Springs (S.O.S.) Alliance, Inc., 

388 B.R. 202 (Bankr. W.D. Tex. 2008), aff’d, 2009 WL 8637183 (W.D. Tex. Sept. 29, 2009), 

aff’d, 632 F.3d 168 (5th Cir. 2011) .................................................................................12, 13, 14 

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In re SM 104 Ltd., 

160 B.R. 202 (Bankr. S.D. Fla. 1993).........................................................................................11 

In re Smith, 

123 B.R. 863 (Bankr. C.D. Cal. 1991) ........................................................................................11 

Solow v. PPI Enters. (U.S.), Inc. (In re PPI Enters. (U.S.), Inc.), 

324 F.3d 197 (3d Cir. 2003)............................................................................................ 11-12, 16 

Ultra Petroleum Corp. v. Ad Hoc Comm. of Unsecured Creditors of Ultra Res., Inc. (In re Ultra 

Petroleum Corp.), 

No. 17-20793 (5th Cir. Nov. 26, 2019).......................................................................................11 

In re Vill. at Camp Bowie I, L.P., 

454 B.R. 702, 708 & n.13 (Bankr. N.D. Tex. 2011), aff’d, 710 F.3d 239 (5th Cir. 2013) .........16 

In re Wabash Valley Power Ass’n, 

72 F.3d 1305 (7th Cir. 1995), abrogated on other grounds by, Bank of Am. Nat’l Tr. & Sav. 

Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434 (1999), as recognized by, In re Castleton 

Plaza, LP, 707 F.3d 821, 824 (7th Cir. 2013) .................................................................12, 13, 14 

Statutes 

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

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

11 U.S.C. § 1123 .........................................................................................................................2, 10 

11 U.S.C. § 1124 .............................................................................................................2, 10, 11, 12 

11 U.S.C. § 1126 .............................................................................................................................10 

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

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

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

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

Other Authorities 

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

Fed. R. Bankr. P. 1015(b) .................................................................................................................7 

Hr’g Tr. (Sept. 24, 2019) ...................................................................................................................7 

Order Referring Bankruptcy Cases and Proceedings to Bankruptcy Judges, General Order 24 

(N.D. Cal.).....................................................................................................................................7 

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MEMORANDUM OF POINTS AND AUTHORITIES 

I. PRELIMINARY STATEMENT 

Any theory that the classes of Subrogation Wildfire Claims are not impaired by the Debtors’ 

Plan is based on the overly simplistic argument that the aggregate amount of Allowed Subrogation 

Wildfire Claims are being paid in full by the $11 billion to be distributed to the Subrogation Wildfire 

Trust (as defined below) under the Debtors’ Plan. This characterization, however, ignores key 

features of the Subrogation Claims Settlement that are inextricably intertwined with, and 

conditioned on, confirmation and consummation of the Debtors’ Plan. Courts consistently have 

held that a class of settled claims is impaired if there is any alteration of a creditor’s rights pursuant 

to a settlement agreement that is conditioned on, and implemented through, a chapter 11 plan even 

if the settlement is approved prior to confirmation. 

Moreover, notwithstanding the distribution of $11 billion to treat and discharge Subrogation 

Wildfire Claims, the Debtors’ Plan alters the legal, equitable, or contractual rights of holders of 

Subrogation Wildfire Claims in at least three ways, each of which alone is sufficient under Ninth 

Circuit law to preclude treating the classes of such claims as unimpaired. First, the Debtors’ Plan 

substitutes a different party—the Subrogation Wildfire Trust, to which a limited subset of the 

Debtors’ assets will be transferred—as the new obligor on the Subrogation Wildfire Claims, without 

any recourse against the Debtors. 

Second, the fact that all other holders of unsecured claims are to be paid postpetition interest 

on their allowed claims, where the holders of Subrogation Wildfire Claims have substantially 

reduced their claims and will receive no postpetition interest thereon, conclusively demonstrates 

impairment, and, itself, is dispositive of the issue. 

Third, distributions on Subrogation Wildfire Claims will be delayed well beyond the 

Debtors’ Plan Effective Date. For years following the Effective Date, only partial distributions from 

the Subrogation Wildfire Trust will be made on Subrogation Wildfire Claims—even those arising 

from payments already made by insurers to insured parties—as a result of reserves that will be held 

back to address Subrogation Wildfire Claims relating to future insurer payments to their insureds. 

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Recognizing that there can be no serious dispute as to whether the classes of Subrogation 

Wildfire Claims are impaired under the Debtors’ Plan, this Court correctly made the following 

observation at a hearing held on September 24, 2019: 

MR. KAROTKIN: We expect that - it’s our view they are clearly - that 

class [of Subrogation Wildfire Claims] is clearly impaired under the 

plan, and they will vote - 

THE COURT: Oh, I don’t doubt that, either.

MR. KAROTKIN: Okay. 

THE COURT: My point is that -- and you made it clear in the original 

plan -- I can’t keep track of all your classes -- but clearly it was an 

impaired class before the settlement. Now, it’s still an impaired class.

Hr’g Tr. (Sept. 24, 2019) at 10:17-25 (emphasis supplied). 

For these reasons, the Court should enter an order determining that the classes of 

Subrogation Wildfire Claims are impaired and entitled to vote on the Debtors’ Plan. 

II. JURISDICTION 

This Court has jurisdiction to consider these issues pursuant to 28 U.S.C. §§ 157 and 1334; 

the Order Referring Bankruptcy Cases and Proceedings to Bankruptcy Judges, General Order 24 

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

for the Northern District of California. This is a core proceeding pursuant to 28 U.S.C. § 157(b). 

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

III. BACKGROUND 

On January 29, 2019, each of the Debtors filed voluntary petitions for relief under chapter 

11 of the Bankruptcy Code. The Debtors continue to operate their businesses and manage their 

properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 

No trustee or examiner has been appointed in either of the Chapter 11 Cases. The Debtors’ Chapter 

11 Cases are being jointly administered for procedural purposes only pursuant to Rule 1015(b) of 

the Federal Rules of Bankruptcy Procedure. 

On February 12, 2019, the United States Trustee (the “U.S. Trustee”) appointed an Official 

Committee of Unsecured Creditors (the “Creditors’ Committee”). On February 15, 2019, the U.S. 

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Trustee appointed the Official Committee of Tort Claimants (the “TCC” and, together with the 

Creditors’ Committee, the “Committees”). 

Following the Petition Date, the holders of insurance subrogation claims arising out of or 

relating to the 2017 and 2018 Northern California Wildfires (the “Subrogation Wildfire Claims” 

and the holders thereof, the “Subrogation Wildfire Claimants”) timely filed and asserted claims 

against the Debtors totaling more than $20 billion in the aggregate. In connection therewith, and 

after months of arms’ length negotiations, the Debtors and the holders of approximately 97% in 

dollar amount of the Subrogation Wildfire Claims (the “Consenting Creditors”) have agreed (the 

“Subrogation Claims Settlement”) to settle the more than $20 billion of asserted liabilities for an 

$11 billion allowed claim (the “Allowed Claim Amount”), a roughly 45% reduction in the total 

amount of the Subrogation Wildfire Claims asserted in the Chapter 11 Cases, to be treated and 

discharged as provided in, and subject to confirmation and consummation of, the Debtors’ Plan. To 

document the terms of the Subrogation Claims Settlement, the Debtors and the Consenting Creditors 

entered into that certain Restructuring Support Agreement, dated as of September 22, 2019 (as 

thereafter amended and restated on November 1, 2019, and subsequently amended on November 

13, 2019 and November 18, 2019 and as may be further amended, modified, or supplemented from 

time to time, the “RSA”). On September 24, 2019, the Debtors filed a motion to approve the RSA 

[Docket No. 3992] (the “RSA Motion”), which is scheduled for hearing before the Court on 

December 4, 2019.2

Pursuant to the RSA, if it is determined that the Debtors are insolvent, the Debtors are not 

required to file a chapter 11 plan that pays the Subrogation Wildfire Claimants $11 billion in cash. 

In addition, the RSA has various rights of termination and, under certain circumstances, the Allowed 

Claim Amount is no longer binding on the Subrogation Wildfire Claimants, the Debtors, or any 

other party in interest in these Chapter 11 Cases. See RSA §§ 3(a)(i), 5. 

The Debtors’ Plan establishes two separate classes of Subrogation Wildfire Claims, one 

against each of the Debtors: Class 5A - II (Holdco Subrogation Wildfire Claims) and Class 5B - II 

2

 Any description of the RSA herein is qualified in its entirety by reference to the RSA. 

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(Utility Subrogation Claims) (collectively, the “Subrogation Classes”). Each of the Subrogation 

Classes are designated as impaired under the Debtors’ Plan and the holders of Holdco Subrogation 

Claims and Utility Subrogation Claims are entitled to vote on the Debtors’ Plan. See Debtors’ Plan 

§§ 4.6(b), 4.19(g). All Holdco Subrogation Wildfire Claims (Class 5A - II) will be deemed satisfied, 

settled, released, and discharged through the treatment provided to Utility Subrogation Wildfire 

Claims under the Debtors’ Plan. Id. at § 4.6(a). In relevant part, the Debtors’ Plan provides the 

following with respect to the claims in the Subrogation Classes: 

 On the Effective Date, the Debtors will establish a trust (the “Subrogation Wildfire 

Trust”) to which the Debtors will pay $11 billion in cash on account of the Allowed 

Claim Amount. Pursuant to the Channeling Injunction to be implemented under 

Section 10.7 of the Debtors’ Plan, each holder of a Subrogation Wildfire Claim will 

have its Claim permanently channeled to the Subrogation Wildfire Trust, and such 

Wildfire Subrogation Claim will be asserted exclusively against the Subrogation 

Wildfire Trust in accordance with its terms, with no recourse to the Debtors, the 

Reorganized Debtors, or their respective assets and properties. Id. at § 4.19(e). Under 

Section 6.4 of the Debtors’ Plan, the Subrogation Wildfire Trust will administer, 

process, settle, resolve, liquidate, satisfy, and pay all Subrogation Wildfire Claims. 

Id. at § 6.4(a). 

 Distributions from the Subrogation Wildfire Trust to the holders of Allowed 

Subrogation Wildfire Claims will be made by the Subrogation Wildfire Trustee to be 

selected and appointed as set forth in Section 1.182 of the Debtors’ Plan, and in 

accordance with the terms of the Debtors’ Plan, the Subrogation Wildfire Claim 

Allocation Agreement, and the Subrogation Wildfire Trust Agreement. Id. at 

§§ 1.182, 6.4(c). Pursuant to Section 6.5 of the Debtors’ Plan, the powers and duties 

of the Subrogation Wildfire Trustee include, without limitation, those necessary and 

proper to (i) make distributions to holders of Allowed Subrogation Wildfire Claims 

in accordance with the terms of the Debtors’ Plan, the Wildfire Subrogation Trust 

Agreement, and Subrogation Wildfire Claim Allocation Agreement, and (ii) carry out 

the provisions of the Debtors’ Plan relating to the Subrogation Wildfire Trust and the 

Subrogation Wildfire Claims. Id. at § 6.5. 

 In addition to the Subrogation Wildfire Trustee, the Debtors’ Plan provides for the 

establishment and appointment on the Effective Date of the Subrogation Wildfire 

Advisory Board, which will consist of three (3) initial members selected by the 

holders of Subrogation Wildfire Claims in accordance with the Subrogation Trust 

Agreement and the Subrogation Wildfire Claim Allocation Agreement. The 

Subrogation Wildfire Advisory Board is to consult with and advise the Subrogation 

Wildfire Trustee as to the administration and management of the Subrogation Wildfire 

Trust in accordance with the terms of the Debtors’ Plan, the Confirmation Order, 

and/or the Subrogation Wildfire Trust Agreement. Id. at §§ 1.180, 6.6. 

 Notwithstanding the fact that holders of other Allowed Unsecured Claims will be paid 

postpetition interest on such claims under the Debtors’ Plan, no postpetition, and preEffective Date, interest is to be paid with respect to the Subrogation Wildfire Claims 

under the Debtors’ Plan. Id. at § 4.19(b). 

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Following the announcement of the Subrogation Claims Settlement, at a hearing in 

connection with their then-pending motion to terminate the Debtors’ exclusive periods to file and 

solicit a chapter 11 plan, the TCC and the Ad Hoc Committee of Senior Unsecured Noteholders (the 

“Ad Hoc Noteholder Committee”) announced that they would adopt the terms of the Subrogation 

Claims Settlement, and thereafter modified the terms of their proposed competing chapter 11 plan 

(the “TCC/Noteholder Plan”) to do so. Notwithstanding the fact that they adopted the terms of 

the Subrogation Claims Settlement to convince the Court to terminate the Debtors’ exclusive 

periods, the Ad Hoc Noteholder Committee now suggests that the Subrogation Classes do not 

constitute impaired classes and the holders of Allowed Subrogation Wildfire Claims do not have 

the right to vote on the Debtors’ Plan. As discussed below, the Subrogation Classes are clearly 

impaired under, and are entitled to vote on, the Debtors’ Plan. 

IV. THE SUBROGATION WILDFIRE CLAIMS ARE IMPAIRED AND THE 

SUBROGATION WILDFIRE CLAIMANTS ARE ENTITLED TO VOTE. 

A claimant is entitled to vote on a plan of reorganization if it holds an allowed claim and 

that claim is impaired under the plan of reorganization. 11 U.S.C. §§ 1126(a) (“The holder of a 

claim or interest allowed under section 502 of this title may accept or reject a plan.”). Except as 

otherwise set forth in section 1123(a)(4) of the Bankruptcy Code,3 a class of claims is impaired 

unless the plan “leaves unaltered the legal, equitable, and contractual rights to which such claim or 

interest entitles the holder of such claim or interest.” 11 U.S.C. § 1124. Unimpaired claims are 

“conclusively presumed to have accepted the plan” under section 1126(f) of the Bankruptcy Code, 

which leads to the general rule that “[o]nly impaired parties have the right to vote on the 

reorganization plan.” Great W. Bank & Tr. v. Entz-White Lumber & Supply, Inc. (In re Entz-White 

Lumber & Supply, Inc.), 850 F.2d 1338, 1340 n.3 (9th Cir. 1988) (superseded by statute on other 

grounds). 

3

 Section 1123(a)(4) of the Bankruptcy Code provides that, “[n]otwithstanding any otherwise 

applicable nonbankruptcy law, a plan shall . . . (4) provide the same treatment for each claim or 

interest of a particular class, unless the holder of a particular claim or interest agrees to a less 

favorable treatment of such particular claim or interest.” 11 U.S.C. § 1123(a)(4). 

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The Ninth Circuit has adopted a broad definition of impairment. See L & J Anaheim Assocs. 

v. Kawasaki Leasing Int’l, Inc. (In re L & J Anaheim Assocs.), 995 F.2d 940, 942-43 (9th Cir. 1993) 

(“It is well established that, with this language, Congress defined impairment in the broadest 

possible terms . . . any alteration of the rights constitutes impairment even if the value of the rights 

is enhanced. . . . There is no suggestion here that only alterations of a particular kind or degree can 

constitute impairment.”) (emphasis supplied); see also In re Rexford Prop. LLC, 558 B.R. 352, 368 

(Bankr. C.D. Cal. 2016) (holding class of trade claims was “clearly impaired” where claims were to 

be paid an amount equal to 100% but on the condition that such claimants agree to provide the 

debtor with beneficial credit terms post-emergence); In re Smith, 123 B.R. 863, 866 (Bankr. C.D. 

Cal. 1991) (“Courts have consistently interpreted the term ‘impairment’ very broadly; and the great 

weight of authority and reason lead me to the conclusion that if a plan alters any of a claimant’s 

rights in any respect, a plan does not leave that claim ‘unimpaired.’”) (emphasis in original). Courts 

also have held that the Bankruptcy Code “creates a presumption of impairment so as to enable a 

creditor to vote on acceptance of the plan.” Solow v. PPI Enters. (U.S.), Inc. (In re PPI Enters. 

(U.S.), Inc.), 324 F.3d 197, 203 (3d Cir. 2003). 

Courts have held that impairment under section 1124 must result from a claimholder’s 

treatment under the proposed chapter 11 plan and not out of any treatment imposed by the 

Bankruptcy Code or other applicable law. See Ultra Petroleum Corp. v. Ad Hoc Comm. of 

Unsecured Creditors of Ultra Res., Inc. (In re Ultra Petroleum Corp.), No. 17-20793, at 8 (5th Cir. 

Nov. 26, 2019) (collecting cases supporting the proposition that “[a]ll agree that impairment results 

from what the plan does, not what the bankruptcy statute does”) (quotation marks and other 

modifications omitted) (emphasis in the original); In re SM 104 Ltd., 160 B.R. 202, 215 n.25 (Bankr. 

S.D. Fla. 1993) (finding a party unimpaired whose rights were modified by a prepetition agreement 

that was assumed postpetition, because the rights, although modified by prepetition agreement of 

the parties, “were not altered by the plan”); In re PPI Enters., 324 F.3d at 204 (“In other words, a 

creditor’s claim outside of bankruptcy is not the relevant barometer for impairment; we must 

examine whether the plan itself is a source of limitation on a creditor’s legal, equitable, or 

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contractual rights.”); In re Art & Architecture Books of the 21st Century, No. 2:13-bk-14135-RK, 

2016 WL 1118743, at *9 (Bankr. C.D. Cal. March 18, 2016) (“Although the Ninth Circuit 

interpreted Section 1124(1)’s ‘impairment’ concept broadly, to include even positive alterations of 

creditor rights, the court repeatedly referred to changes made ‘by the plan.’“) (referring to In re L & 

J Anaheim Assocs., 995 F.2d 940). 

A. The Subrogation Wildfire Claims Are Impaired Because the Settlement and 

Treatment of the Allowed Claim Amount are Tied to Confirmation and 

Consummation of the Debtors’ Plan. 

An alteration of rights pursuant to a settlement results in impairment of the applicable class 

of creditors under a chapter 11 plan when the settlement is inextricably bound up in confirmation 

of the plan. See In re Wabash Valley Power Ass’n, 72 F.3d 1305, 1321 (7th Cir. 1995), abrogated 

on other grounds by, Bank of Am. Nat’l Tr. & Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434 

(1999), as recognized by In re Castleton Plaza, LP, 707 F.3d 821, 824 (7th Cir. 2013); In re Save 

Our Springs (S.O.S.) Alliance, Inc., 388 B.R. 202 (Bankr. W.D. Tex. 2008), aff’d, 2009 WL 

8637183 (W.D. Tex. Sept. 29, 2009), aff’d, 632 F.3d 168 (5th Cir. 2011); cf. In re Lower Bucks 

Hosp., 471 B.R. 419, 457-58 (Bankr. E.D. Penn. 2012) (settlement did not result in third party’s 

claim being rendered unimpaired because, in part, the settlement “was not a stand-alone agreement 

that was complete and enforceable upon court approval. The Settlement Stipulation was linked 

inextricably to confirmation of the Plan. The enforceability of the material provisions of the 

Settlement Stipulation were contingent upon the occurrence of the effective date of a plan with 

provisions consistent with those described in the Settlement Stipulation.”). 

Courts previously have held that where a claimant enters into a pre-confirmation settlement 

with a debtor, the settling party maintains an allowed, impaired claim for voting purposes when, as 

here, payment on account of the settled claim is to occur after confirmation of the chapter 11 plan. 

See In re Wabash Valley Power Ass’n, 73 F.3d 1305; In re Julian Servs. Indus., Inc, 220 B.R. 613, 

617-18 (Bankr. N.D. Ill. 1998); In re Save Our Springs (S.O.S.) Alliance, Inc., 388 B.R. 202; In re 

Carolina Tobacco Co., Case No. BR 05-34156-ELP11, 2006 WL 7074335 (Bankr. D. Or. March 

14, 2006) aff’d, 360 B.R. 702 (D. Or. 2007), and vacated on consent, No. APPEAL 06-1170-KI, 

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2012 WL 12527885 (D. Or. Feb. 22, 2012) (“I do not think that [the settling party’s] agreement to 

settle its claim against debtor for substantially less than the $105 million it asserted it was owed 

make it unimpaired for purposes of voting on the plan.”). 

For example, in Wabash Valley, the Court of Appeals for the Seventh Circuit was asked to 

review the prior decisions of the Bankruptcy Court and District Court approving a settlement 

between a creditor and the debtor, pursuant to which the creditor was to receive an allowed claim 

of approximately $460,000, but with any distribution on account of the allowed claim “contingent 

upon confirmation of the Wabash Plan.” 72 F.3d at 1310 (emphasis in original). The Court of 

Appeals held that the creditor’s claim, which was fixed and allowed prior to confirmation of the 

plan, was nevertheless properly found to be impaired under the debtor’s plan because the settlement 

was “inextricably intertwined with and dependent on the reorganization plan. [The creditor’s] 

recovery under the settlement will depend on whether the Wabash Plan is approved.” Id. at 1321. 

Similarly, in Save Our Springs, the Bankruptcy Court for the Western District of Texas 

approved an agreement between the debtor and a litigation counterparty, Mak Foster Ranch, L.P., 

to settle their dispute for a “fixed and liquidated” amount to be paid pro rata from a settlement fund. 

388 B.R. at 213-14, 236. Mak Foster’s settlement was expressly conditioned upon confirmation of 

the plan, permitting both parties to exercise their rights on appeal of the litigation claim if 

confirmation was denied. Id. at 213. Accordingly, the Bankruptcy Court held that “Mak Foster’s

claim, because its settlement is contingent upon confirmation, is impaired.” Id. at 239 (emphasis 

supplied). In reaching its conclusion, the Court contrasted the Mak Foster settlement with a 

settlement between the debtor and another claimant, Cypress-Hays, L.P., which resulted in an 

immediate dismissal with prejudice of the debtor’s appeal—an agreement that “is not dependent on

the Court’s approval of the Debtor’s Plan but rather is a full and unconditional resolution of all 

claims against each other and a liquidation of Cypress-Hays[’] claim against the Debtor.” Id. at 

213, 233. See also In re Julian Servs., 220 B.R. at 617-18 & n.10 (holding a creditor lost its right 

to vote on the debtor’s plan of reorganization following a settlement where the creditor was paid “in 

cash immediately,” leaving it with at most an administrative expense claim). 

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Like the claims that were at issue in the settlements in Wabash Valley and Save Our Springs, 

the Subrogation Claims Settlement is plainly conditioned on, and inextricably intertwined with, 

confirmation and consummation of the Debtors’ Plan. The Subrogation Claims Settlement 

terminates automatically if the Debtors’ Plan is not confirmed, and no distributions will be made to 

any Subrogation Wildfire Claimants on the Allowed Claim Amount unless and until the Debtors’ 

Plan is confirmed and becomes effective. Additionally, under certain circumstances, there is no 

requirement to pay the $11 billion Allowed Claim Amount in cash, and/or the Allowed Claim 

Amount no longer would be binding on anyone in the Chapter 11 Cases. See RSA §§ 2(a)(ii)-(iii), 

3(a)(i), 4, 5(c). Moreover, the mechanism for treating and satisfying any Allowed Subrogation 

Wildfire Claims is effectuated solely through the Debtors’ Plan. All Subrogation Wildfire Claims 

are to be channeled to, administered by, and paid from, the Subrogation Wildfire Trust to be 

established pursuant to the Debtors’ Plan, which the Debtors will fund with $11 billion in cash on 

the Effective Date. See Debtors’ Plan § 6.4(a). 

Accordingly, consistent with the applicable authority and the Court’s prior statements, the 

Subrogation Classes are impaired under the Debtors’ Plan and entitled to vote thereon. 

B. The Subrogation Classes are Impaired Because the Debtors’ Plan Channels 

Distributions for Allowed Subrogation Wildfire Claims to the Subrogation 

Wildfire Trust. 

As set forth above, impairment is broadly defined to include any alteration of a claimant’s 

legal rights as a result of the treatment under a plan. See In re L & J Anaheim Assocs., 995 F.2d at 

943. This includes the obvious alteration of rights that occurs when a plan substitutes or replaces 

the entity to which a party may seek recourse on account of its claims. See In re Great Barrington 

Oaks Gen. P’ship, 15 B.R. 952, 956 (Bankr. D. Utah 1981) (“The bank is impaired because the sale 

to BMP, even without a due on restriction, changes obligors and therefore alters rights under the 

instruments memorializing the loan.”); In re NNN 3500 Maple 26, LLC, No. 13-30402-HDH-22, 

2014 WL 1407320, at *5 (Bankr. N.D. Tex. 2014) (finding a creditor was impaired when a different 

borrower was substituted for the debtor); Bustop Shelters of Louisville v. Classic Homes, Inc., 914 

F.2d 810, 814-15 (6th Cir. 1990) (stating a creditor would have been impaired by a substitute obligor 

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on a loan if the debtor’s “obligation to pay the loan was extinguished and a different party substituted 

to assume the payments”); see also Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.), 

843 F.2d 636, 642 (2d Cir. 1988) (noting that a creditor had standing to challenge a plan because 

the creditor “has economic interests that are directly impaired by the Plan,” which included, among 

other reasons, that “[h]is recourse to the courts to pursue damages for his injuries is limited by the 

settlement procedures mandated by the Trust”). 

Pursuant to the Channeling Injunction under Sections 4.19(e) and 10.7 of the Debtors’ Plan, 

each holder of a Subrogation Wildfire Claim will have its Claim permanently channeled to the 

Subrogation Wildfire Trust, and such Wildfire Subrogation Claim can be asserted exclusively 

against the Subrogation Wildfire Trust and satisfied solely from the assets of the Subrogation 

Wildfire Trust in accordance with its terms, with no recourse to the Debtors, the Reorganized 

Debtors, or their respective assets and properties. Id. at § 4.19(e). Consequently, the Debtors’ 

obligations to the holders of Subrogation Wildfire Claims will be extinguished immediately upon 

the Debtors’ payment of the Allowed Claim Amount to the Subrogation Wildfire Trust in 

accordance with the Debtors’ Plan. 

With recourse to only the Subrogation Wildfire Trust—a completely separate entity from 

the Debtors and Reorganized Debtors—the Subrogation Classes are plainly impaired by the 

Debtors’ Plan. 

C. The Debtors’ Plan Impairs the Subrogation Classes Because the Plan Does Not 

Provide For the Payment of Postpetition Interest on the Allowed Claim Amount 

to the Holders of Subrogation Wildfire Claims. 

As formulated, the Debtors’ Plan presumes that the Debtors are solvent and, as the Court is 

aware, there currently is litigation ongoing to determine the appropriate postpetition rate of interest 

to be paid to the holders of Allowed Unsecured Claims. Nevertheless, the Debtors’ Plan expressly 

provides that no postpetition, and pre-Effective Date, interest will be paid with respect to the 

Subrogation Wildfire Claims. See id. at § 4.19(b). 

 Numerous courts have held that a party holding an allowed claim against a solvent debtor has 

a right to receive postpetition interest and, if that right is altered, the party will be impaired. See 

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Onink v. Cardelucci (In re Cardelucci), 285 F.3d 1231, 1234 (9th Cir. 2002) (holding that when a 

debtor in bankruptcy is solvent, an unsecured creditor is entitled to postpetition interest on its claim 

at the federal judgment rate); In re PPI Enters., Inc., 324 F.3d at 206 (agreeing with the Bankruptcy 

Court that Congress “intended that to be unimpaired, the claim must receive postpetition interest” 

in the context of a solvent debtor); In re Vill. at Camp Bowie I, L.P. 454 B.R. 702, 708 & n.13 

(Bankr. N.D. Tex. 2011), aff’d, 710 F.3d 239 (5th Cir. 2013) (noting in a solvent debtor case that to 

be unimpaired, a class of unsecured creditors must receive payment in full with interest).

Accordingly, the failure to pay postpetition interest to holders of Subrogation Wildfire 

Claims in and of itself constitutes impairment of the Subrogation Classes under the Debtors’ Plan. 

D. The Subrogation Classes are Impaired by the Post-Effective Date Delay in 

Distributions to Holders of Subrogation Wildfire Claims Under the Debtors’ 

Plan. 

The rights of holders of Subrogation Wildfire Claims will be further altered and impaired 

under the Debtors’ Plan because a portion of the distributions to Subrogation Wildfire Claimants 

from the Subrogation Wildfire Trust will be delayed due to the need to establish reserves to address 

potential future payments to insureds. This delay will undoubtedly be far longer than the relatively 

minor (30-60 day) delays in payment of the full amount of creditors’ allowed claims that Courts 

within the Ninth Circuit have previously found to constitute impairment. See Conn. Gen. Life Ins. 

Co. v. Hotel Assocs. of Tucson (In re Hotel Assocs. of Tucson), 165 B.R. 470, 475 (B.A.P. 9th Cir. 

1993) (payment to general unsecured creditors 30 days after the effective date is impairment); 

Oxford Life Ins. Co. v. Tucson Self-Storage (In re Tucson Self-Storage), 166 B.R. 892, 895 n.5 

(B.A.P. 9th Cir. 1994) (A 60 day delay in payment after the effective date is impairment). This 

delay in payment to holders of Allowed Subrogation Wildfire Claims thus constitutes further 

impairment by the Debtors’ Plan. 

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V. CONCLUSION 

For the foregoing reasons, this Court should find the Subrogation Classes are impaired for 

all purposes under the Debtors’ Plan. 

Dated: November 27, 2019 

_/s/ Stephen Karotkin_______________ 

WEIL, GOTSHAL & MANGES LLP 

Stephen Karotkin (pro hac vice) 

(stephen.karotkin@weil.com) 

Ray C. Schrock, P.C. (pro hac vice) 

(ray.schrock@weil.com) 

Jessica Liou (pro hac vice) 

(jessica.liou@weil.com) 

Matthew Goren (pro hac vice) 

(matthew.goren@weil.com) 

767 Fifth Avenue 

New York, NY 10153-0119 

Tel: 212 310-8000 

Fax: 212 310-8007 

KELLER & BENVENUTTI LLP 

Tobias S. Keller (#151445) 

(tkeller@kellerbenvenutti.com) 

Jane Kim (#298192) 

(jkim@kellerbenvenutti.com) 

650 California Street, Suite 1900 

San Francisco, CA 94108 

Tel: 415 496-6723 

Fax: 650 636-9251 

Attorneys for Debtors

and Debtors in Possession

_/s/ Matthew A. Feldman____________ 

WILLKIE FARR & GALLAGHER LLP 

Matthew A. Feldman (pro hac vice) 

(mfeldman@willkie.com) 

Joseph G. Minias (pro hac vice) 

(jminias@willkie.com) 

Benjamin P. McCallen (pro hac vice) 

(bmccallen@willkie.com) 

Daniel I. Forman (pro hac vice) 

(dforman@willkie.com) 

787 Seventh Avenue 

New York, NY 10019-6099 

Tel: 212 728-8000 

Fax: 212 728-8111 

DIEMER & WEI, LLP 

Kathryn S. Diemer (#133977) 

(kdiemer@diemerwei.com) 

100 West San Fernando Street, Suite 555 

San Jose, CA 95113 

Tel: 408 971-6270 

Fax: 408 971-6271 

Counsel for Ad Hoc Group of Subrogation 

Claim Holders

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