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UNITED STATES DEPARTMENT OF JUSTICE

CIVIL DIVISION

JOSEPH H. HUNT

Assistant Attorney General

RUTH A. HARVEY

Director

KIRK MANHARDT

Deputy Director

MATTHEW J. TROY (GABN 717258)

Senior Trial Counsel

P.O. Box 875

Ben Franklin Station

Washington, DC 20044-0875

Telephone: (202) 514-9038

E-mail: matthew.troy@usdoj.gov

DAVID L. ANDERSON (CABN 149604)

United States Attorney

ROBIN M. WALL (CABN 235690)

Assistant United States Attorney

Attorneys for the United States of America

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).

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Bankruptcy Case

No. 19-30088 (DM)

Chapter 11

(Lead Case)

 (Jointly Administered)

 Date: October 23, 2019

 Time: 10:00 a.m.

 Place: United States Bankruptcy Court

 450 Golden Gate Avenue

 Courtroom 17

 San Francisco, CA 94102

 Judge: Hon. Dennis Montali

 RE: Docket No. 3992

 

OBJECTION OF THE UNITED STATES OF AMERICA TO DEBTORS’ MOTION 

PURSUANT TO 11 U.S.C. §§ 363(b) AND 105(a) AND FED. R. BANKR. P. 6004 AND 

9019 FOR ENTRY OF AN ORDER (I) AUTHORIZING THE DEBTORS TO ENTER 

INTO RESTRUCTURING SUPPORT AGREEMENT WITH THE CONSENTING 

SUBROGATION CLAIMHOLDERS, (II) APPROVING THE TERMS OF 

SETTLEMENT WITH SUCH CONSENTING SUBROGATION CLAIMHOLDERS, 

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INCLUDING THE ALLOWED SUBROGATION CLAIM AMOUNT, 

AND (III) GRANTING RELATED RELIEF 

The United States of America, on behalf of various federal agencies, hereby objects to the 

Debtors’ Motion Pursuant to 11 U.S.C. §§ 363(b) and 105(a) and Fed. R. Bankr. P. 6004 and 9019 for 

Entry of an Order (I) Authorizing the Debtors to Enter into Restructuring Support Agreement with the 

Consenting Subrogation Claimholders, (II) Approving the Terms of Settlement with Such Consenting 

Subrogation Claimholders, Including the Allowed Subrogation Claim Amount and (III) Granting 

Related Relief (the “Motion”).1

Preliminary Statement

In seeking approval for the single largest claims settlement to date in these cases constituting a 

“pivotal development and accomplishment,” Motion at 8, the Motion uses an impenetrable array of

defined terms cross-referenced and incorporated over four different documents – the Motion, the Plan, 

the RSA, and the Settlement Term Sheet – making it nearly impossible to discern precisely what relief 

the Debtors are asking from the Court. The lack of clarity alone justifies denying the Motion. 

Notwithstanding this, however, certain key elements of the settlement stand out as objectionable and

impermissible under the Bankruptcy Code. Therefore, the proposed settlement falls below the lowest 

point of the range of reasonableness under Bankruptcy Rule 9019, and the Court should deny the 

Motion.

The Court Should Deny the Motion

I. The RSA Releases Claims Not Held by the Subrogation Claim Holders

The Settlement Term Sheet, which is itself an exhibit to Exhibit A (the RSA) to the Motion, 

states that the settlement “will resolve all claims against the Debtors (as such term is defined in the 

section 101(5) of the Bankruptcy Code) related to or in any way arising from the wildfires set forth 

on Schedule 1 that occurred in Northern California in 2017 and 2018 that arose from subrogation 

 1 Terms not otherwise defined herein shall have the meaning ascribed to them in the Motion and 

accompanying exhibits.

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(whether such subrogation is contractual, equitable or statutory), assignment (whether such 

assignment is contractual, equitable or statutory), or otherwise in connection with payments made 

or to be made by the applicable insurer to insured tort victims.” Motion, Ex. A at Ex A. at 1 

(emphasis added). This definition of “Subrogation Claims” from the Settlement Term Sheet is then 

incorporated into the RSA, Motion, Ex. A at 5, and forms the crux of the RSA – an agreement to settle 

the Subrogation Claims for an aggregate allowed claim of $11 billion, id., Ex. A at 11. The definition 

of the Subrogation Claims is, however, broad enough to encompass all possible subrogation claims 

regardless of who holds them or whether those claims are in connection with payments made by 

insurers to insured tort victims. In other words, the Consenting Creditors, who are the signatories to 

the RSA, id. at Ex. A at 1, are purporting to settle claims that they do not hold and do not have the 

authority to settle.

The United States informally raised this objection with counsel for the Debtors and believes 

that the Debtors are amenable to inserting language in an approval order that the definition of 

Subrogation Claims does not include the claims of any Governmental Unit (as defined in section 

101(27) of the Bankruptcy Code) and that any such claims are not subject to compromise under the 

Subrogation Claims Settlement or RSA. To date, however, the United States has not seen a proposed 

order containing such language and therefore, reserves its right to press this objection at the hearing on 

the Motion.

II. The RSA Requires the Debtors to Obtain Impermissible Third-Party Releases

Section 3(a)(iii) of the RSA, Motion, Ex. A at 8, requires Debtors “upon entry into any 

settlement with any holder or holders of IP Claims that fixes the amount or terms for satisfaction of an 

IP Claim . . . [to have] the holder of the IP Claim contemporaneously execute and deliver a release and 

waive any and all claims to the fullest extent permitted by law against all parties in interest in the 

Chapter 11 Cases.” (emphasis added). The RSA defines IP Claims as “any Wildfire Claims that is 

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not a [settling] Public Entities Wildfire Claim or Subrogation Claim,” id., Ex. A at 4, which is the 

same definition for “Other Wildfire Claim” under the Plan begging the question of why the RSA had 

to use a different defined term for the same thing.

As the Court noted at a previous hearing, the claims of the governmental entities arising from 

the Wildfires, like those of the United States, are Other Wildfire Claims under the Plan falling into 

Class 5B-III, Utility Other Wildfire Claims. Thus, RSA section 3(a)(iii) requires the United States, if 

it reaches a settlement with Debtors regarding the United States’ claims arising from the Wildfires, to 

provide the broadest possible release (“any and all claims”) to the broadest possible group (“all parties 

in interest”) if the United States wants to be paid under the settlement. The RSA then bakes this 

Settlement Payment Condition into the Debtors’ Plan. Id., Ex. A at 9 (section 3(a)(v)). If the United 

States or any other holder of an IP Claim does not provide such a release, the Debtors cannot settle 

without breaching the RSA. This key element of the RSA significantly distinguishes it from the

settlement and plan support agreement this Court approved in the Utility’s prior bankruptcy and upon 

which the Motion heavily relies to justify approval of the RSA. Motion at 20-21. 

In essence, under the guise of a settlement subject to Bankruptcy Rule 9019, the RSA imposes 

a third party release that Ninth Circuit authority bars. Resorts Int’l, Inc. v. Lowenschuss (In re 

Lowenschuss), 67 F.3d 1394 (9th Cir. 1995). Such an impermissible limitation on the Debtors’ ability 

to consensually negotiate and resolve claims as part of its reorganization, a fundamental goal and 

hallmark of chapter 11 reorganization, causes the RSA to fall below even the lowest range of 

reasonableness as applied under Bankruptcy Rule 9019. Martin v. Kane (In re A & C Properties), 784 

F.2d 1377 (9th Cir. 1986). Specifically, the RSA is neither reasonable nor fair and equitable because 

instead of preserving the rights of non-parties to the RSA, it prejudices them with the imposition of an 

otherwise impermissible release. The RSA’s third party release requirement also contradicts the Plan, 

which contains (1) an opt-out option from third party releases, Plan at § 1.159(d) (definition of 

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Releasing Parties) and (2) a purported carve out for governmental units from third party releases, 

among other things, id. at 10.13 (“Special Provisions for Governmental Units”). Accordingly, the 

Court should deny the Motion.

III. The RSA Violates Sections 1121 and 1125

The Court just terminated the Debtors’ exclusivity under section 1121 as to the TCC. Docket 

No. 4167. Now, Debtors seek approval of the RSA to (1) lock-up the votes of the holders of the 

Subrogation Claims in favor of the Plan and against the TCC/BH Plan or any other plan and (2) 

prevent the holder of those claims from negotiating with the TCC and bondholders or anyone else 

regarding alternative plans. Motion, Ex A. at 7. Under similar circumstances in the Utility’s prior 

bankruptcy, such provisions in the Utility’s plan support agreement drew strong objections as being

violations of sections 1121 and 1125. See, e.g., In re Pacific Gas and Electric Company, Case No. 01-

30923 (Bankr. N.D. Cal. March 21, 2002) [Docket No. 5341] (objection of California Public Utilities 

Commission). Indeed, the Court approved an amended plan and support agreement, id. [Docket No. 

5558], that deleted the voting restrictions with respect to other plans, allowed the settling creditors to 

negotiate and consider other plans, and deleted the requirement that the settling creditors fully support 

the Utility’s plan, id. [Docket No. 5549] (summary of modifications to settlement and support 

agreement). This Court should treat the RSA no differently and deny the Motion for seeking approval 

of an agreement that violates sections 1121 and 1125.

CONCLUSION

For all of the foregoing reasons, the Court should deny the Motion and not approve the RSA.

Date: October 16, 2019 Respectfully submitted,

JOSEPH H. HUNT

Assistant Attorney General

DAVID L. ANDERSON (CABN 149604)

United States Attorney

ROBIN M. WALL (CABN 235690)

Assistant United States Attorney

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/s/ Matthew J. Troy

RUTH A. HARVEY

Director

KIRK MANHARDT

Deputy Director

MATTHEW J. TROY

Senior Trial Counsel

Attorneys for United States

CERTIFICATE OF SERVICE

I hereby certify that on October 16, 2019, I electronically filed the foregoing Objection with the Clerk 

of the Court by using the CM/ECF system, which will send a notice of electronic filing to all CM/ECF 

participants.

/s/ Matthew J. Troy

Matthew J. Troy

Senior Trial Counsel 

Attorney for United States

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