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BAKER 

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HOSTETLER LLP

ATTORNEYS AT LAW

SAN FRANCISCO

Robert A. Julian (SBN 88469)

Cecily A. Dumas (SBN 111449)

BAKER & HOSTETLER LLP

600 Montgomery Street, Suite 3100

San Francisco, CA 94111-2806 

Telephone: 415-659-2900

Facsimile: 415-659-2601

Email: rjulian@bakerlaw.com

Email: cdumas@bakerlaw.com

Eric E. Sagerman (SBN 155496)

David J. Richardson (SBN 168592)

Lauren T. Attard (SBN 320898)

BAKER & HOSTETLER LLP

11601 Wilshire Blvd., Suite 1400

Los Angeles, CA 90025-0509

Telephone: 310.820.8800

Facsimile: 310.820.8859

Email: esagerman@bakerlaw.com

Email: drichardson@bakerlaw.com

Email: lattard@bakerlaw.com

Counsel to the Official Committee of Tort Claimants

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

In re:

PG&E CORPORATION

-andPACIFIC GAS AND ELECTRIC 

COMPANY,

Debtors.

□ Affects PG&E Corporation

□ Affects Pacific Gas and Electric 

Company

■ Affects both Debtors

*All papers shall be filed in the Lead Case, 

No. 19-30088 (DM)

Bankruptcy Case 

No. 19-30088 (DM)

Chapter 11 (Lead Case)

(Jointly Administered)

ADDITIONAL RESPONSE OF OFFICIAL 

COMMITTEE OF TORT CLAIMANTS TO 

DEBTORS’ RESTATED RESTRUCTURING 

SUPPORT AND SETTLEMENT 

AGREEMENT WITH THE CONSENTING 

SUBROGATION CLAIMHOLDERS [DKT 

NO. 4554-1]

Date: December 4, 2019

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

Place: United States Bankruptcy Court

Courtroom 17, 16th Floor

San Francisco, CA 94102

Case: 19-30088 Doc# 4955 Filed: 12/03/19 Entered: 12/03/19 12:18:12 Page 1 of

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The Official Committee of Tort Claimants (“TCC”) respectfully files this additional 

response to the Restated Restructuring Support Agreement (the “Settlement”) [Dkt. No. 4554-1] 

filed by PG&E Corporation and Pacific Gas & Electric Company (“PG&E” and collectively, the 

“Debtors”), and the Ad Hoc Group of Subrogation Claim Holders (“Subrogation Claimants”), 

the Court’s Tentative Considerations [Dkt. No. 4872] and the responsive Statement of the 

Subrogation Claimants [Dkt. No. 4921]. In support of this response, the TCC is filing 

contemporaneously herewith the Declaration of Xavier Oustalniol (the “Oustalniol Decl.”).

This response addresses two of the Court’s tentative considerations: First, the Court stated 

that it would consider subordination of Subrogation Claims on a claim-by-claim basis. Second, the 

Court stated that an insured victim’s release of the insurer of made whole claims as a condition of 

receiving a settlement payment from the trust is legal, because the insured has a choice of 

consenting to the release or trying his or her claims to judgment (along with the 70,000 other victim 

trials that would take place over a 10-12 year period of time, if each victim takes this Court up on 

its solution of trying all claims to preserve the rights against the insurers.)

In response, the Subrogation Claimants filed a “Solution” that says that the insured victims 

“can assert made whole claims on a claim-by-claim basis, except to the extent such individuals 

voluntarily agree to settle their claims and execute a release.” In other words, the Subrogation 

Claimants’ “Solution” is that this Court will enter a judgment subordinating Subrogation Claims 

on a claim-by-claim basis in the pending adversary proceeding or at confirmation, and when the 

victims accept their settlements years later from the resolution trust, they will voluntarily consent 

to execute releases which would retroactively, years later, undo the subordination judgment entered 

in the adversary proceeding or at plan confirmation. 

This response explains why such a “consensual release” is illegal in the Ninth Circuit, and 

analyzes the billions of dollars involved in this dispute, which the Subrogation Claimants argue 

could be reversed retroactively years later in trust administration. 

Releases

To be clear, there are two distinct releases at issue: (i) an “opt-in” release on the ballot that 

would release all claims held by fire victims against insurers/subrogation claimholders if it is 

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SAN FRANCISCO

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checked; and (ii) a second release, only of made whole rights, before any fire victim can receive 

payment from the estate under any settlement. Ninth Circuit case law is clear that a bankruptcy 

court lacks jurisdiction to approve the latter, and may lack jurisdiction to approve the former.

In Underhill v. Royal, 769 F.2d 1426, 1432 (9th Cir. 1985), the Ninth Circuit held that, 

under Bankruptcy Code section 524(e), a bankruptcy court lacks jurisdiction to approve a plan that 

contains a release between two non-debtor parties, and a creditor’s consent to the release, as a 

condition of receiving a payment under the plan, does not cure the court’s lack of jurisdiction. 

In Underhill, the plan released creditors’ securities claims against non-debtor insiders. Id. at 1431-

32. The bankruptcy court approved the plan over the creditors’ objection that the court lacked 

jurisdiction to approve a plan that contained a release between non-debtor parties. On appeal to the 

Ninth Circuit, the debtor argued that the infirmity in the plan release was cured because the creditors 

had consented to the release by accepting payment under the plan. The Ninth Circuit held that the 

creditor’s consent to the release by accepting a payment under the plan did not cure the court’s lack 

of jurisdiction:

When a bankruptcy court discharges the debtor, it does so by operation of the 

bankruptcy laws, not by consent of the creditors. . . . 

Consequently, “the payment which effects a discharge is not consideration for any 

promise by the creditors, much less for one to release non-party obligors.” . . .

The bankruptcy court “has no power to discharge the liabilities of a bankrupt’s 

guarantors.” 

769 F.2d at 1432 (emphasis added) citing Union Carbide Corp. v. Newboles, 686 F.2d 593, 595 

(7th Cir. 1982) (per curiam). 

The Ninth Circuit cited the Seventh Circuit’s decision in Union Carbide, which struck down 

a consent mechanism in a settlement arrangement that is similar to PG&E’s settlement release in 

this case: 

Acceptance and confirmation of this Arrangement shall constitute a full settlement, 

satisfaction and discharge of all claims, demands, actions, causes of action or 

otherwise against not only the Debtor, but also against any other persons or entities 

who have entered into guaranty or indemnity agreements with unsecured creditors 

or who have endorsed commercial paper for the benefit of the Debtor. 

686 F.2d at 594. 

Case: 19-30088 Doc# 4955 Filed: 12/03/19 Entered: 12/03/19 12:18:12 Page 3 of

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With respect to the idea that creditors, like the victims here, have a “choice” to consent to 

the release, the Seventh Circuit provided this analysis, which seems appropriate for this PG&E 

case also:

A creditor’s approval of the plan cannot be deemed an act of assent having 

significance beyond the confines of the bankruptcy proceedings, simply because 

the gamesmanship importuned from state contract law into the bankruptcy 

proceedings would be intolerable.

In summary, in three separate decisions the Ninth Circuit has held that this rule is 

“jurisdictional,” and that a bankruptcy court’s inability to approve a third-party release in a plan is 

not a matter of a creditor’s consent or choice, but of the court’s lack of authority to approve a nondebtor release. See In re Lowenschuss, 67 F.3d 1394, 1401-02 (9th Cir. 1995) (holding that the 

bankruptcy court “lacks the power” to discharge liabilities of non-debtors); American Hardwoods, 

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

(“no power”); Underhill v. Royal, 769 F.2d 1426, 1432 (9th Cir. 1985) (“no power”).

This issue is an important one that involves billions of dollars of recoveries for the victims, 

as we will explain in the next section. See, e.g., Order on Applicability of Inverse Condemnation; 

Rule 54(b) Certification, at 3 [Dkt No. 4949] (“this issue determines Debtors’ liability for billions 

of dollars and shapes the outline of a Chapter 11 plan and this case in general.”). Accordingly, if 

this Court concludes the Court has the power to approve a plan term that creates a release between 

non-debtor parties, the insured victims and their insurers, the TCC requests that the Court certify 

that decision to the Ninth Circuit now so the victims do not need to delay their settlements with the 

Resolution Trust until the dispute is resolved.

Both the settlement release, and the opt-in ballot release, are also both unfair because they 

are not mutual: the insurers have a claim against the insureds for recovery of payments made by 

PG&E to the insureds, and the insureds have claims against the insurers under the made whole rule, 

among other claims. Any fair release would be mutual. But the plan and RSA settlement set up 

two separate one-sided releases—one in the ballot, and one in any settlement for payment—which 

subjects the victims to more uncertainty and financial impairment, here from the very insurers who 

are supposed to put the insured victims’ rights first. The one-sided aspect of both releases renders 

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SAN FRANCISCO

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them unfair by definition, and unworthy of the imprimatur of this Honorable Court. Moreover, no 

release should be permitted to release open insurance claims, ongoing coverage disputes, or any 

claims that are not related to the Debtors’ liability to insureds.

Made Whole

The TCC’s financial consultants have begun reviewing the attachments recently filed by 

each Subrogation Claimant to its proof of claim, as well as files prepared by the Debtors’ experts 

that were recently made available. This analysis is ongoing and is not complete. See Oustalniol 

Decl. at ¶¶ 8-10. Pursuant to the Wildfire Subrogation Claimant Proof of Claim Form, which is 

Exhibit A-3 to the Court’s bar date order dated July 1, 2019 [Dkt. No. 2806], the Subrogation 

Claimants were required to submit detailed information on the “Attachment 1s” to support their 

proofs of claim by November 21, 2019, 30 days after the Bar Date. The TCC’s financial consultants 

have been able to determine, as a preliminary manner, that of the 59,877 records included in the 

Subrogation Claims, 27,993 have unique IDs that correspond to records that can be found in Prime 

Clerk. Id. at ¶ 16. This indicates that potentially $10.8 billion or more of the Subrogation 

Claimants’ claims correspond on a claim-by-claim basis to individual wildfire claims filed against 

the Debtors and thus are subject to mandatory subordination under California law. See id. It 

appears that the Debtors have failed to undertake any analysis on this issue. Id. at ¶ 7.

In support of the Debtors’ original motion to approve the Settlement [Dkt. No. 3992] 

(“Motion”), the Debtors submitted the Declaration of Jason P. Wells [Dkt. No. 3993] (“Wells 

Declaration”), which stated that “[t]he aggregate amount of Subrogation Claims that may be 

asserted in these Chapter 11 Cases are likely in excess of $20 billion,” and does not contain an 

analysis of whether any of those claims are subject to California’s subordination law. Mr. Wells 

did not set forth any evidence showing that these claims were actually filed. 

The TCC objected to the Motion [Dkt. No. 4232], arguing on page 21 that the Wells 

Declaration did not provide any fact specific analysis of the Rule 9019 factors. The Adventist

Claimants, in their opposition to the Motion [Dkt. No. 4239], argued on page 4 that the Wells 

Declaration lacks evidence to demonstrate personal knowledge of the facts, and that no evidence 

was presented to show the amount of current claims. These objections remain unresolved.

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CONCLUSION

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

Motion, the TCC respectfully requests that this Court deny the Motion. If the Court approves the 

Motion, the TCC requests that the Court certify the decision to the Ninth Circuit.

Dated: December 3, 2019 BAKER & HOSTETLER LLP

By: /s/ Robert A. Julian 

Robert A. Julian

Counsel to the Official Committee of Tort Claimants 

Case: 19-30088 Doc# 4955 Filed: 12/03/19 Entered: 12/03/19 12:18:12 Page 6 of

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