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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

CRAVATH, SWAINE & MOORE LLP

Paul H. Zumbro (pro hac vice)

(pzumbro@cravath.com)

Kevin J. Orsini (pro hac vice)

(korsini@cravath.com)

Omid H. Nasab (pro hac vice)

(onasab@cravath.com)

825 Eighth Avenue

New York, NY 10019

Tel: 212 474 1000

Fax: 212 474 3700

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

In re: 

PG&E CORPORATION,

 - and -

PACIFIC GAS AND ELECTRIC 

COMPANY,

Bankruptcy Case No. 19-30088 (DM)

Chapter 11

(Lead Case) (Jointly Administered)

DEBTORS’ REPLY IN SUPPORT OF 

SUBROGATION CLAIMS SETTLEMENT 

AND RSA MOTION

Re: Docket Nos. 3992 and 3993

Date: October 23, 2019

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

Place: United States Bankruptcy Court

Courtroom 17, 16th Floor

San Francisco, CA 94102

Judge: Hon. Dennis Montali

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

(the “Utility”), as debtors and debtors in possession (collectively, “PG&E” or the “Debtors”) in the 

above-captioned chapter 11 cases (the “Chapter 11 Cases”), hereby submit this Reply (the “Reply”) in 

support of 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, dated September 24, 2019 [Docket No. 3992] (the “RSA Motion”)1 and in 

response to the various objections filed with respect thereto (collectively, the “Objections” filed by 

the “Objectors”).

2

 1 Capitalized terms used not otherwise defined herein have the meanings assigned to them in the RSA 

Motion.

2 The Objections include, without limitation, the objections and limited objections found at Docket Nos. 

4220, 4231, 4232, 4236, 4237, 4239, and 4241.

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TABLE OF CONTENTS

Page

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

II. CERTAIN OF THE OBJECTIONS HAVE BEEN RESOLVED ..................................9

III. THE REMAINING OBJECTIONS TO THE RSA MOTION SHOULD BE 

OVERRULED............................................................................................................11

A. Entry into the RSA and Subrogation Claims Settlement Represents a 

Major Accomplishment in these Chapter 11 Cases, is not Inconsistent 

with the Court’s Recent Decision to Terminate Exclusivity and 

Furthers the Prospects of Achieving a Global Settlement.................................11

B. Approval of the Subrogation Claim Settlement, including the Allowed 

Subrogation Claim Amount and Payment of Fees of the Ad Hoc 

Professionals, is Fair and Equitable and in the Best Interests of the 

Debtors’ Estates and Satisfies the Requirements of Bankruptcy Rule 

9019................................................................................................................15

C. The TCC’s Made-Whole Objection Should be Summarily Rejected ................18

D. The Class of Subrogation Claims is an Impaired Class ....................................20

E. The RSA Complies with Section 1125 of the Bankruptcy Code.......................21

IV. CONCLUSION ..........................................................................................................23

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TABLE OF AUTHORITIES

Cases .........................................................................................................................................Page(s)

In re Allied Nevada Gold Corp.,

Case No. 15-10503 (MFW) (Bankr. D. Del. Aug. 27, 2015) .........................................................13

In re AWTR Liquidation Inc., 

548 B.R. 300 (Bankr. C.D. Cal. 2016) .................................................................................... 15, 16

Century Glove, Inc. v. First American Bank of New York,

860 F. 2d 94 (3d Cir. 1988).............................................................................................................1

In re Charter Commc’ns,

419 B.R. 221 (Bankr. S.D.N.Y. Nov. 17, 2019) ............................................................................17

Draney v. Wilson, Morton, Assaf & McElligott,

No. CIV. 79-1029, 1985 WL 5820 (D. Ariz. Sept. 30, 1985).........................................................18

Dumont v. Charles Schwab & Co.,

No. CIV.A. 99-2840, 2000 WL 1023231 (E.D. La. July 21, 2000)................................................18

In re Eagle Bulk Shipping Inc., 

Case No. 14-12303 (SHL) (Bankr. S.D.N.Y. Sept. 18, 2014)........................................................13

In re Energy Future Holdings Corp.,

Case No. 14-10979 (CSS) (Bankr. D. Del. Sept. 18, 2015) ...........................................................21

In re Exide Technologies,

Case No. 13-11482 (KJC) (Bankr. D. Del. Feb. 2, 2015) ..............................................................14

In re FirstEnergy Solutions Corp.,

Case No. 18-50757 (AMK) (Bankr. N.D. Ohio April 30, 2019) ....................................................13

In re Genco Shipping & Trading Ltd.,

Case No. 14-11108 (SHL) (Bankr. S.D.N.Y. April 25, 2014)........................................................13

In re Heritage Org., L.L.C.,

376 B.R. 783 (Bankr. N.D. Tex. 2007)..........................................................................................22

In re Hexion Holdings LLC,

Case No. 19-10684 (KG) (Bankr. D. Del. 2019) ...........................................................................13

In re Indianapolis Downs LLC,

486 B.R. 286 (Bankr. D. Del. 2013).............................................................................. 9, 12, 13, 22

Kaul v. Mentor Graphics Corp.,

No. 16-CV-02496-BLF, 2016 WL 6249024 (N.D. Cal. Oct. 26, 2016), aff’d, 730 F. 

App’x 437 (9th Cir. 2018) ............................................................................................................16

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In re Kellogg Square P’ship,

160 B.R. 336 (Bankr. D. Minn. 1993)...........................................................................................22

In re Laser Realty, Inc. v. Fernandez (In re Fernandez),

2009 Bankr. LEXIS 2846 (Bankr. D.P.R. Mar. 31, 2009) .............................................................17

In re LightSquared Inc., 

Case No. 12-12080 (SCC) (Bankr. S.D.N.Y. Mar. 27, 2015) ........................................................13

In re Manuel Mediavilla, Inc.,

568 B.R. 551 (B.A.P. 1st Cir. 2017)..............................................................................................17

McCoy v. Kazi,

No. CV0807244SJOCWX, 2010 WL 11465179 (C.D. Cal. Aug. 27, 2010)..................................16

In re Milagro Holdings,

LLC, Case No. 15-11520 (KG) (Bankr. D. Del. 2015) ..................................................................13

In re Sabine Oil & Gas Corp.,

555 B.R. 180 (Bankr. S.D.N.Y. 2016)...........................................................................................18

In re SeraCare Life Sciences,

Case No. 06-00510 LA11 (Bankr. S.D. Cal. Dec. 21, 2006)..........................................................14

In re TK Holdings Inc.,

Case No. 17-11375 (BLS) (Bankr. D. Del. Dec. 13, 2017)...................................................... 13, 21

Trans World Airlines, Inc. v. Texaco Inc. (In re Texaco Inc.),

81 B.R. 813, 815 (Bankr. S.D.N.Y. 1988).....................................................................................12

In re Walter Energy, Inc.,

Case No. 15-02741-TOM11 (Bankr. N.D. Ala. Sept. 14, 2015) ....................................................13

Statutes

11 U.S.C. § 101..................................................................................................................................16

11 U.S.C. § 101(27) ...........................................................................................................................10

11 U.S.C. § 1125(b) .......................................................................................................................7, 21

Other Authorities

Fed. R. Banrk. P. 9019 ......................................................................................................... 7, 9, 15, 16

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I. PRELIMINARY STATEMENT

The Debtors have made what the Court and, indeed, all other parties in interest have 

acknowledged as “substantial progress” in the administration of their Chapter 11 Cases by achieving a

settlement of all Subrogation Claims (the “Subrogation Claims Settlement”) and filing the Debtors’ 

First Amended Joint Chapter 11 Plan of Reorganization on September 23, 2019 [Docket No. 3966] 

(the “Debtors’ Plan”). The Subrogation Claims Settlement has resolved $20 billion of Subrogation 

Claims for consideration to be paid under the Debtors’ Plan in the amount of $11 billion, representing a 

45% discount. 

Notably, the Ad Hoc Noteholders Committee (the “Ad Hoc Noteholders Committee”) 

and the Official Committee of Tort Claimants (the “TCC”), having been unsuccessful in frustrating the 

Debtors’ efforts to achieve the Subrogation Claims Settlement and in order to convince this Court to 

terminate the Debtors’ exclusive periods, quickly adopted the Debtors’ Subrogation Claims Settlement, 

and advised the Court that if they were authorized to file a competing plan, they would treat the 

Subrogation Claims in the same way, including from the TCC’s perspective, abandoning any contention 

that the Subrogation Claims be subordinated based on made-whole principles or otherwise. Under these 

circumstances, for the TCC to dedicate virtually all of its Objection to the approval of the RSA on this 

basis is not only disingenuous, but an affront to this Court and to the chapter 11 process. 

As is customary, the Subrogation Claims Settlement that was reached between the 

Debtors and the Consenting Creditors was embodied in the RSA. As the Objectors are well aware, the 

terms of the RSA hardly are unique, unusual or atypical and, as stated, document a settlement that is 

admittedly fair and reasonable and significantly advances the timely and successful administration of 

these cases.3

 As the Court indicated in its ruling on their motion to terminate the Debtors’ exclusive 

periods, it was not going to “second-guess” the TCC’s decision to partner with the Ad Hoc Noteholders 

Committee’s plan (the “Elliott Plan”). See Order Term. Excl. Periods [Docket No. 4167] at 3:6-9. The

 3 The Debtors inadvertently did not mention in the RSA Motion that in PG&E’s prior chapter 11 case, 

the Utility agreed, apparently in response to certain objections, to remove the voting restriction in a plan 

support agreement that was presented to the Court for approval. The Debtors are not aware as to whether 

the Court actually ruled on this issue in connection with that matter. 

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Court should take the same approach with respect to the Subrogation Claimants. They have agreed with 

the Debtors to settle their claims on the terms set forth in the RSA, having determined that this is the 

best path to a successful conclusion of these Chapter 11 Cases, and, indeed, made that decision while 

being actively pursued by the TCC and the Ad Hoc Noteholders Committee to support the Elliott Plan. 

As the Court is well aware, termination of the Debtors’ exclusive periods only means that a competing

plan may be filed, it is not a license to interfere with and undermine the Debtors’ efforts to build a 

consensus for their Plan. 

The principal Objections to the RSA Motion are summarized as follows:

1. Approval of the RSA would be inconsistent with the Court’s recent order 

terminating the Debtors’ exclusive periods; 

2. Approval of the RSA would require the Debtors to pay the holders of 

Subrogation Claims $11 billion under all circumstances, including if it were 

determined the Debtors were insolvent; 

3. The RSA somehow is violative of the individual wildfire claimants’ madewhole rights under California law, and provides for improper releases; 

4. The Allowed Subrogation Claim Amount of $11 billion is not a fair 

compromise and settlement under Bankruptcy Rule 9019; and 

5. The RSA constitutes an inappropriate solicitation of votes on a plan in 

contravention of section 1125 of the Bankruptcy Code. 

The Objections should be overruled for obvious reasons. They assert no legal or factual 

basis to frustrate what this Court has characterized as “substantial progress” in these cases, and both the 

Ad Hoc Noteholders Committee and the TCC expressly support the Subrogation Claims Settlement. 

Denial of the RSA will constitute a significant setback in these cases, resurrecting $20 billion in claims 

and the specter of insolvency, to the detriment and prejudice of all parties in interest. The Court should 

not let this scenario unfold.

As indicated above, and as the Court must recognize, the RSA is a customary agreement 

with customary provisions, including those relating to the support of the Debtors’ Plan. Indeed, that is 

perhaps the most fundamental provision of any RSA. Plan support agreements such as the RSA are 

routinely approved in recognition of how they serve to build consensus and advance the administration 

of chapter 11 cases. Notably, no party has cited any legal authority as a basis to reject approval of the 

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RSA, including the plan voting provisions provided for therein. 

The contention that the recent termination of the Debtors’ exclusive periods somehow 

compels a different result also lacks any supporting authority. Under the Objectors’ logic, it would never 

be appropriate to approve an RSA with plan voting restrictions because in every case a debtor’s exclusive 

periods could be terminated. In fact, all RSAs contemplate the circumstances of alternative plans and,

therefore, the termination of exclusivity, and routinely are approved.

Moreover, there is no evidence that approval of the RSA will inhibit the ability to achieve 

a global resolution of these Chapter 11 Cases. As set forth in the October 21, 2019 letter from Mr. 

Feldman of the Willkie Farr & Gallagher firm, counsel to the Ad Hoc Subrogation Group (the “Willkie 

Letter”),4 and as the Debtors agree, “nothing in the RSA precludes the Debtors and the Ad Hoc 

Subrogation Group from negotiating together with any other creditor constituencies or participating in 

mediation to achieve a global consensus.” Willkie Letter ¶ 1. Both the Debtors and the Ad Hoc 

Subrogation Group intend to pursue this goal and the Debtors hope that the TCC and Ad Hoc 

Noteholders Committee share this view as well. Indeed, as counsel for the TCC told the Court at the 

recent exclusivity hearing (again in an apparent effort to convince the Court to terminate exclusivity) –

the TCC would only engage in mediation if the Court terminated the Debtors’ exclusive periods. See 

Hr’g Tr. (Oct. 7, 2019) at 166:2-9. Having achieved that goal, hopefully the TCC will live up to its

commitment to the Court. 

The specter raised by the UCC that the RSA would enable the Subrogation Claimants to 

receive $11 billion, even if the Debtors were determined to be insolvent, also has been addressed. First, 

as a practical matter, no plan could meet the requirements for confirmation under the circumstances the 

UCC posits. In any event, the Willkie Letter again disposes of this Objection, making it clear that, if the 

Court determines the Debtors are insolvent, the Debtors no longer are required to file a plan that pays 

Subrogation Claimants $11 billion. See Willkie Letter ¶ 2. 

The TCC’s Objection, which is dedicated primarily to its contention that the RSA violates

the made-whole rights of certain wildfire claimants, simply is wrong. There is nothing in the RSA which 

 4 A copy of the Willkie Letter is annexed hereto as Exhibit A. 

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compels any individual wildfire claimant to release or waive any made-whole rights, and the TCC’s 

mischaracterization of the terms of the RSA cannot change this. Moreover, because the Debtors’ Plan 

will comply with AB 1054, there can be no made-whole issue in any event. As noted above, for the 

TCC to raise this objection after having agreed in open court to file a plan with the same treatment for 

the Subrogation Claims as the Debtors’ Plan is tantamount to bad faith. Nevertheless, to dispel any 

possible basis for the TCC’s Objection, as noted in the Willkie Letter, Section 10.9(b) of the Debtors’ 

Plan will be amended to require claimants to opt-in to releases, consistent with the Elliott Plan.

The TCC’s assertion that the settlement of the Subrogation Claims at a 45% discount does 

not satisfy the requirements of Bankruptcy Rule 9019 fares no better. In the first instance, no other party 

has raised this objection, obviously recognizing the fairness of the compromise and settlement that was 

the culmination of long and hard fought, arms’ length negotiations. Moreover, having adopted the 

settlement for itself to convince the Court to terminate the Debtors’ exclusive periods, the TCC is 

estopped from raising this objection. 

Lastly, as demonstrated below, any contention that the RSA constitutes an improper 

solicitation completely misses the mark. The RSA is the culmination of negotiations among 

sophisticated parties – something to be encouraged in chapter 11 cases. As appropriately noted by Judge 

Shannon in In re Indianapolis Downs LLC, 486 B.R. 286, 297 (Bankr. D. Del. 2013), in approving a 

restructuring support agreement:

But consistent with the holding in Century Glove, courts must be chary of 

construing those disclosure and solicitation provisions in a way that chills 

or hamstrings the negotiation process that is at the heart of Chapter 11.

The Debtors have achieved a significant accomplishment in these Chapter 11 Cases that 

is critical to moving these cases forward toward a timely and successful conclusion. The Objectors have 

put forth no legitimate reasons why that accomplishment should be frustrated and why the relief 

requested in the RSA Motion should not be approved. 

II. CERTAIN OF THE OBJECTIONS HAVE BEEN RESOLVED

The Debtors have been in discussions with various parties regarding the RSA Motion, 

including the U.S. Trustee, the U.S. Department of Justice, and counsel for California’s Governor’s 

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Office of Emergency Services and the Department of Veterans Affairs, and have agreed to certain 

clarifications or other revisions to the Proposed Order to address the concerns of such parties. These 

changes include, among other things, adding language to the Proposed Order clarifying that the claims 

of Governmental Units (as defined in section 101(27) of the Bankruptcy Code) are not included in the 

definition of Subrogation Claims for purposes of the RSA and the Subrogation Claims Settlement, and 

adding procedures for the review of the reasonable professional fees and expenses of certain of the Ad 

Hoc Professionals. A revised form of Proposed Order incorporating these and other changes

(the “Revised Proposed Order”) will be filed with the Court prior to the hearing on the RSA Motion.

In addition, as set forth above, the Willkie Letter addresses and dispenses with many of 

the Objections and, to the extent required, clarifying language will be added to the Revised Proposed 

Order. This includes:

• Plan Negotiations/Global Settlement. Clarifying that nothing in the RSA 

precludes the Debtors and the Ad Hoc Subrogation Group from negotiating 

together with any other creditor constituencies or participating in mediation to 

achieve a global consensus.

• Consequences of Insolvency. Clarifying that if the Court determines the Debtors 

are insolvent, the Debtors will no longer be required to (a) file a plan that pays 

subrogation claimants $11 billion in cash on $11 billion of allowed claims; 

(b) require that individual claimants in connection with a voluntary settlement 

release made-whole claims pursuant to Section 3(a)(iii) of the RSA for the portion 

of their allowed claims against the Debtors’ estates that are not fully satisfied 

under the Debtors’ Plan, or (c) pursue a plan or confirmation order with the 

finding set forth in Section 3(a)(v) of the RSA, relating to satisfaction of certain 

provisions of AB 1054.

If the Court determines the Debtors are insolvent and the Debtors file a revised 

plan that does not pay the subrogation claimants $11 billion in cash, the 

Consenting Creditors would be free to vote for or against any such revised plan. 

For the avoidance of doubt, subject to the right to terminate the RSA and seek a 

higher claim as provided in the RSA, the subrogation claims would continue to 

be allowed in the aggregate amount of $11 billion.

• Releases. Three clarifications with respect to the releases referenced in Section 

3(a)(iii) of the RSA and Section 10.9(b) of the Debtors’ Plan:

o The releases of Subrogation Claimants are intended to narrowly address 

claims related to the Chapter 11 Cases and the Debtors’ restructuring and 

any made whole claims that may be asserted relating to the 2017 and 2018 

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wildfires by individual plaintiffs who elect to settle their claims against 

the Debtors or a post-effective date trust (individually or as a group).

There is no intention to impose a release of ordinary-course insurance 

claims by insureds arising under their insurance policies.

o Section 10.9(b) of the Debtors’ Plan will be amended to require claimants 

to opt-in to releases, consistent with the Elliott Plan, with respect to any 

release of Subrogation Claimants under the plan.

o Pursuant to Section 3(a)(iii) of the RSA, payments to individual holders 

of wildfire claims that settle their claims against the Debtors or a posteffective date trust (individually or as a group) will be conditioned on 

executing a release of any made whole claims against insurers and their 

assignees. Individual plaintiffs that litigate their claims to judgment will 

have no such requirement. The Debtors and the Ad Hoc Subrogation 

Group will work with the TCC to ensure the form release is drafted to 

narrowly address only its intended purpose.

• RSA Amendments. Material RSA amendments will be noticed to the Court and 

parties in interest with an opportunity to respond, to make sure any material 

adjustment to the settlement passes muster under the applicable legal standard.

III. THE REMAINING OBJECTIONS TO THE RSA MOTION SHOULD BE 

OVERRULED

A. Entry into the RSA and Subrogation Claims Settlement Represents a Major 

Accomplishment in these Chapter 11 Cases, is not Inconsistent with the Court’s 

Recent Decision to Terminate Exclusivity, and Furthers the Prospects of Achieving 

a Global Settlement.

As stated, the RSA and Subrogation Claims Settlement are critical milestones in these 

Chapter 11 Cases and significantly advance the Debtors’ path to confirmation and their successful 

emergence from chapter 11 on a schedule that will meet the June 30, 2020 deadline established under 

AB 1054. Indeed, the Court previously referred to this settlement as “major progress” towards the 

advancement of these Chapter 11 Cases. Hr’g Tr. (Sept. 24, 2019) at 45:2 (emphasis added).

Certain of the Objectors, however, now contend that approval of the RSA is premature or 

no longer appropriate in light of the Court’s recent decision to terminate the Debtors’ exclusive periods 

and allow the filing of the Elliott Plan. Those parties, however, conveniently ignore the words of the 

Court in its opinion terminating exclusivity where the Court recognized that the Debtors’ Plan “reflects 

successful resolution of major issues” specifically citing the announcement of the Subrogation Claims 

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Settlement as evidence of such efforts. Order Term. Excl. Periods, at 2:9-18. 

The Objectors now take issue with the standard and routine provisions of the RSA that 

require the Consenting Creditors to support solely the Debtors’ Plan, arguing that such provisions work 

to undermine the Court’s decision to terminate exclusivity. They are mistaken. The RSA and 

Subrogation Claims Settlement clearly work to achieve the stated and express goal espoused by the Court 

when it terminated exclusivity, namely building support and consensus for a “global resolution” and to 

“narrow the issues which are in legitimate dispute.” Order Term. Excl. Periods, at 3:14-15. The Court 

further noted that it would be entirely appropriate and in fact a “very acceptable outcome” for one plan 

to emerge as confirmable, id. at 3:19-20, and, by entering into the RSA and successfully resolving the 

significant matters in dispute with the Subrogation Claimants, the Debtors are working to do just that. 

As estate fiduciaries, and as they did with the Public Entities Settlement before and now with the RSA 

and Subrogation Claims Settlement, the Debtors are continuing to work to build consensus towards a 

global resolution and remove issues that are in dispute to ensure that a plan may be confirmed in time to 

meet the June 2020 deadline imposed under AB 1054. Conversely, the Elliott Plan lines the pockets of 

the Noteholders at a cost of billions of dollars to customers and the Debtors’ other economic 

stakeholders.

Absent the routine and customary plan support provisions set forth in the RSA, the 

Debtors’ substantial efforts and hard-fought negotiations with the Ad Hoc Subrogation Group would be 

meaningless. Courts have stated as much when presented with similar challenges to approval of plan 

support agreements and voting lock-up provisions. See, e.g., In re Indianapolis Downs, LL., 486 B.R. 

286, 296 (Bankr. D. Del. 2013) (refusing to designate votes over an RSA provision that “predictably” 

contained a commitment to vote for the plan embodied in the deal, when “the record clearly reflects that 

the Restructuring Support Parties were acting at all times to maximize their own recoveries and to 

advance the Debtors’ reorganization process to facilitate a prompt and substantial return on their 

respective claims”); see also Trans World Airlines, Inc. v. Texaco Inc. (In re Texaco Inc.), 81 B.R. 813, 

815 (Bankr. S.D.N.Y. 1988) (“If Pennzoil were free to support another plan while Texaco’s plan was 

still capable of being approved, the negotiation between Texaco and Pennzoil would be meaningless.”). 

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Again, as appropriately noted by Judge Shannon in In re Indianapolis Down,s LLC, 486 B.R. at 296:

As noted, the record reflects that sophisticated parties negotiated a deal and 

memorialized that deal in the RSA; predictably, it contained a commitment 

to vote for a plan that embodied that deal. In the absence of such a 

provision, it does not appear that the parties would have had a deal. 

Negotiation and formulation of a plan in a large, complex Chapter 11 case 

such as this one is not a hypothetical exercise.

Simply put, reaching a negotiated settlement with a debtor is not an opportunity to set a floor and then 

to go and shop that deal to other constituencies. That is not a way to successfully advance the 

administration of a chapter 11 case.

The Objectors would have this Court accept the proposition that no restructuring or 

chapter 11 plan support agreement should ever be approved because in every chapter 11 case there exists 

the possibility that exclusivity may be terminated. That is clearly not a tenable position, as similar 

agreements with the precise support provisions set forth in the RSA are routinely approved by Courts in 

other cases and have been found to be instrumental in building consensus in other successful chapter 11 

restructurings. Indeed, counsel for the Ad Hoc Noteholders Committee, the TCC, and the UCC routinely 

utilize such agreements with substantially similar provisions when representing the interests of both 

debtors and creditors in other chapter 11 cases. See, e.g., In re Allied Nevada Gold Corp., Case No. 15-

10503 (MFW) (Bankr. D. Del. Aug. 27, 2015) [Docket Nos. 755, 926]; In re Eagle Bulk Shipping Inc., 

Case No. 14-12303 (SHL) (Bankr. S.D.N.Y. Sept. 18, 2014) [Docket Nos. 63, 95]; In re FirstEnergy 

Solutions Corp., Case No. 18-50757 (AMK) (Bankr. N.D. Ohio April 30, 2019) [Docket Nos. 2151, 

2577]; In re Genco Shipping & Trading Ltd., Case No. 14-11108 (SHL) (Bankr. S.D.N.Y. April 25, 

2014) [Docket Nos. 13, 47]; In re Hexion Holdings LLC, Case No. 19-10684 (KG) (Bankr. D. Del. 2019) 

[Docket No. 366]; In re LightSquared Inc., Case No. 12-12080 (SCC) (Bankr. S.D.N.Y. Mar. 27, 2015) 

[Docket Nos. 1745, 2276]; In re Milagro Holdings, LLC, Case No. 15-11520 (KG) (Bankr. D. Del. 

2015) [Docket Nos. 31, 138]; In re TK Holdings Inc., Case No. 17-11375 (BLS) (Bankr. D. Del. Dec. 

13, 2017) [Docket Nos. 1109, 1359]; In re Walter Energy, Inc., Case No. 15-02741-TOM11 (Bankr. 

N.D. Ala. Sept. 14, 2015) [Docket Nos. 44, 724]. And, in fact, restructuring support agreements have 

been utilized and found to be entirely appropriate in similar circumstances where other Courts have made 

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the decision to terminate a debtor’s exclusive periods. Se,e e.g., In re Exide Technologies, Case No. 13-

11482 (KJC) (Bankr. D. Del. Feb. 2, 2015) [Docket Nos. 2893, 3087] (approving, after exclusivity had 

been terminated, a plan support agreement where certain supporting creditors agreed not to support or 

vote for any other plan); In re SeraCare Life Sciences, Case No. 06-00510 LA11 (Bankr. S.D. Cal. Dec. 

21, 2006) [Docket Nos. 837, 961] (approving, after exclusivity had been terminated, a plan support 

agreement pursuant to which the signing parties agreed not to support any other plan). 

Moreover, the Objectors fail to give proper deference to the clear and express intentions 

of the Subrogation Claimants as evidenced by their decision to enter into the RSA and the Subrogation 

Claims Settlement, which were the result of protracted, good faith, arms’ length negotiations among 

sophisticated parties and competent and experienced retained professionals. After considering various 

offers and alternative proposals from the Debtors and other parties, including the Ad Hoc Noteholders 

Committee and the TCC, the Consenting Creditors made an informed decision to support the Debtors’ 

Plan and enter into the RSA and Subrogation Claims Settlement. The members of the Ad Hoc 

Subrogation Group were not prevented from engaging with the members of the Ad Hoc Noteholders 

Committee or the TCC. To the contrary, the Noteholders and the TCC made every effort to undermine 

the negotiations between the Debtors and the Ad Hoc Subrogation Group right up until the time of the 

announcement of the Subrogation Claims Settlement. See Hr’g Tr. (Sept. 24, 2019) at 112:21-113:1,

(Mr. Stamer: “but the bottom line is that [the Subrogation Claimants] have asked for and negotiated with 

the company for an eleven-billion-dollar pool of capital: cash, potentially some other noncash 

items....As Mr. Quershi said before, we actually offered that to the subrogation claimants over the 

weekend.”). Perhaps more importantly, the RSA secures a recognized beneficial settlement and avoids 

a bidding war that would hinder rather than promote achieving a global consensus. 

Entry into the RSA is evidence of the Consenting Creditors’ clear preference for the 

Debtors’ Plan and their belief that the best and most likely path towards a global consensual deal and the 

successful and timely conclusion of these cases is to support the plan filed by the Debtors. This was the 

position of the Subrogation Claimants prior to the Court’s decision to terminate exclusivity, and remains 

their position today. 

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Any further concerns raised by the Objectors as to these customary RSA provisions easily 

are dispensed with by the clarifications set forth in the Willkie Letter, which will be incorporated as 

necessary into the Revised Proposed Order, that provide that “nothing in the RSA precludes the Debtors 

and the Ad Hoc Subrogation Group from negotiating together with any other creditor constituencies or 

participating in mediation to achieve a global consensus.” Willkie Letter ¶ 1

Additionally, to clarify any misconception that, as certain Objectors argue, approval of 

the RSA would require the Debtors to pay holders of Subrogation Claims $11 billion under all 

circumstances, even if it were determined that the Debtors were insolvent, again, the Willkie Letter 

addresses and disposes of that objection as well. As stated in that letter, either the RSA can be amended 

or the order approving the RSA can provide that if the Court determines the Debtors are insolvent, the 

Debtors will not be required to (a) file a plan providing for the payment to the Subrogation Claimants of 

$11 billion, or (b) require that individual claimants release made-whole claims in connection with a 

voluntary settlement for the portion of their allowed claims that are not fully satisfied under such plan. 

B. Approval of the Subrogation Claims Settlement, including the Allowed 

Subrogation Claim Amount and Payment of Fees of the Ad Hoc Professionals, is 

Fair and Equitable and in the Best Interests of the Debtors’ Estates, and Satisfies 

the Requirements of Bankruptcy Rule 9019.

Contrary to the assertions of the TCC and other Objectors, approval at this time of the 

Subrogation Claims Settlement, including the Allowed Subrogation Claim Amount and payment of the 

Ad Hoc Professionals’ fees as contemplated in the RSA, is reasonable and appropriate and in the best 

interests of the Debtors’ estates. 

First, the TCC mistakenly contends that a heightened standard of scrutiny should apply 

when evaluating the Subrogation Claims Settlement, asserting that entry into the settlement constitutes 

an insider transaction with the Baupost Group LLC (“Baupost”). Not surprisingly, however, the TCC 

fails to cite any authority to support this proposition, nor can it. It is well-established that the “entire” 

or “inherent fairness” test only applies when reviewing transactions with “a dominant or controlling 

stockholder” and not minority shareholders such as Baupost. In re AWTR Liquidation Inc., 548 B.R. 

300, 318-19 (Bankr. C.D. Cal. 2016); see also, Kaul v. Mentor Graphics Corp., No. 16-CV-02496-BLF, 

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2016 WL 6249024, at *10 (N.D. Cal. Oct. 26, 2016), aff'd, 730 F. App'x 437 (9th Cir. 2018) (“the 

standard of judicial review in examining the propriety of an interested cash-out merger transaction by a 

controlling or dominating shareholder is entire fairness.”); McCoy v. Kazi, No. CV0807244SJOCWX, 

2010 WL 11465179, at *14 (C.D. Cal. Aug. 27, 2010) (“The Plaintiffs state correctly that a controlling 

or dominating shareholder transacting with the corporation bears the burden of proving the transaction's 

entire fairness”). Not surprisingly, the TCC provides no evidence to support a finding that Baupost or

any other Consenting Creditor is an insider or controlling or dominating shareholder. In addition, the 

TCC similarly has presented no evidence whatsoever that Baupost’s position as a creditor somehow 

makes it a statutory insider under section 101 of the Bankruptcy Code. See In re Village of Lakeridge, 

LLC, 814 F.3d 993, 1001 (9th Cir. 2016). Indeed, the record is uncontroverted that the RSA was the 

product of extensive, arms’ length negotiations over many weeks and months, and substantial due 

diligence. See Wells Decl. at 3-5; Wells Dep. Tr. (Oct. 10, 2019) at 36-55.

Second, the TCC stood before the Court at the status conference on September 24, 2019

(the “September 24 Status Conference”), and agreed to adopt the terms of the Subrogation Claims 

Settlement in an effort to convince the Court to terminate exclusivity and allow the TCC and the Ad Hoc

Noteholders Committee to file the Elliott Plan. Now, after the Court has granted that request, the TCC 

makes a complete about-face and argues that the terms of that settlement are not fair and equitable and 

in the best interests of the estates. Not even the Ad Hoc Noteholders Committee, the TCC’s co-plan 

proponent, has the temerity to make that argument. Indeed, at no time at the hearings on September 24 

and October 7 did the TCC indicate anything other than that it would adopt the $11 billion Subrogation 

Claims Settlement. Under these circumstances, the TCC simply cannot credibly assert that the 

Subrogation Claims Settlement is not fair and equitable. 

Further, as demonstrated in the Wells Declaration, the Subrogation Claims Settlement 

clearly satisfies the requirements of Bankruptcy Rule 9019. In terms of absolute dollar amount, the 

settlement under any scenario clearly does not fall below the lowest point in the range of reasonableness.

The assertible Subrogation Claims likely exceed $20 billion. The settled and compromised amount of 

$11 billion, although a very substantial sum, represents a significant reduction by approximately 45%. 

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Additionally, the record is uncontroverted that the Subrogation Claims Settlement is the 

product of protracted, good faith negotiations over a period of many months and substantial due diligence 

and professional advice received by the Debtors and their Board. See Wells Dep. Tr. (Oct. 10, 2019) at 

36-55. As Mr. Wells noted in his deposition testimony, in the weeks preceding the execution of the 

Subrogation Claims Settlement, the Debtors’ Board and its Restructuring Committee were meeting 

several times a week with their retained professionals to assess the status of the negotiations and how 

they were proceeding. See Wells Dep. Tr. (Oct. 10, 2019) at 60-62. Ultimately, the Debtors concluded 

that the terms of the RSA and Subrogation Claims Settlement were fair, reasonable, and in the best 

interests of the Debtors’ estates and parties in interest. Under these circumstances, the Court should give 

deference to the Debtors’ judgment that the terms are fair and reasonable. See In re Charter Commc’ns, 

419 B.R. 221, 256 (Bankr. S.D.N.Y. Nov. 17, 2019) (“All parties to the CII Settlement were represented 

by highly regarded law firms and financial advisors with ample relevant experience in the restructuring 

field. The Court also notes that the parties to the Settlement themselves are sophisticated and 

experienced in high-stakes negotiations. This factor favors approving the settlement.”).

Moreover, the TCC cannot reasonably expect the Debtors to set forth a detailed, pointby-point explanation or analysis of the probability of their success against the Subrogation Claimants in 

the estimation litigation that is currently still pending with respect to the TCC’s constituency. Courts 

have routinely acknowledged that uncertainty of litigation and federal policy weigh in favor of approval 

of settlements. See In re Laser Realty, Inc. v. Fernandez (In re Fernandez), 2009 Bankr. LEXIS 2846 

at *9-10 (Bankr. D.P.R. Mar. 31, 2009) (“The Court concludes that the uncertainty of the litigation 

between the debtors and Citibank weighs heavily in favor of the approval of the Settlement Agreement 

. . .”); In re Manuel Mediavilla, Inc., 568 B.R. 551, 567 (B.A.P. 1st Cir. 2017) (recognizing “federal 

policy encouraging settlement of bankruptcy litigation.”).

The TCC and other Objectors look to second guess particular terms of the Subrogation 

Claims Settlement and would have the Court review those terms independently and in a vacuum, 

accepting some provisions and rejecting others. Such an approach, however, is entirely improper, and 

Courts repeatedly have held that settlements, such as the Subrogation Claims Settlement, should be 

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examined as a whole when determining whether such agreements are fair and equitable and in the best 

interests of debtors and their estates. See, e.g., Draney v. Wilson, Morton, Assaf & McElligott, No. CIV. 

79-1029, 1985 WL 5820, at *2 (D. Ariz. Sept. 30, 1985) (“Compromise is the essence of settlement and 

the Court should not make the proponents of a proposed settlement justify each term of settlement against 

a hypothetical or speculative measure of which concessions might have been gained; inherent in 

compromise is a yielding of absolutes and abandoning of highest hopes.”); Dumont v. Charles Schwab 

& Co., No. CIV.A. 99-2840, 2000 WL 1023231, at *4 (E.D. La. July 21, 2000) (“The Court may not 

approve a settlement unless it finds that the settlement is fair, adequate and reasonable...However, 

the Court is not required to open to debate every provision of the proposed settlement.”); In re Sabine 

Oil & Gas Corp., 555 B.R. 180, 258 (Bankr. S.D.N.Y. 2016) (“In complex settlements, it is appropriate 

for the court not only to consider each settled claim individually but also to consider the reasonableness 

of the settlement agreement as a whole”) (internal citations omitted).

Following good faith negotiations among the Debtors, the Subrogation Claimants, and 

their respective retained professionals, and after due deliberation and evaluation of the terms and issues 

presented, the Debtors and the Board determined that entry into the Subrogation Claims Settlement 

pursuant to the terms of the RSA was fair, equitable, and in the best interest of the Debtors’ estates and 

parties in interest. Under well-established authority, the Court should give deference to that 

determination.

C. The TCC’s Made-Whole Objection Should be Summarily Rejected

As demonstrated above, the TCC’s Objection premised on its assertion that made-whole 

principles somehow subordinate the entire class of Subrogation Claims is completely inconsistent with 

prior statements and representation made to the Court that it would not assert that position. Simply put, 

the TCC cannot have it both ways – it cannot, in an effort to convince the Court to terminate exclusivity,

state that its competing plan would treat the Subrogation Claims the same, and a few days later raise the 

made-whole objection in the context of the RSA Motion and the Debtors’ Plan. 

Even if the Court were to permit this about-face, the TCC’s objection must be rejected 

because the RSA and the Debtors’ Plan are premised on the wildfire claimants being made whole – as 

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required by AB 1054. Additionally, with the clarification in the Willkie Letter, there are no 

impermissible releases either in the RSA or the Debtors’ Plan. 

i. The Wildfire Claims will be Paid in Full under AB 1054

As the Debtors have stated repeatedly and as provided in the Debtors’ Plan, 

implementation of the Debtors’ Plan is conditioned on the Debtors’ participation in the Go-Forward 

Wildfire Fund under AB 1054. (See Debtors’ Plan Sections 6.9, 9.2). Specifically, in order for the 

Reorganized Debtors to participate in the Go-Forward Wildfire Fun, the Court must determine “that the 

resolution of the [Chapter 11 Cases] provides funding or . . . otherwise provides for satisfying any 

prepetition wildfire claims asserted against [the Debtors] in the amounts agreed upon in any . . . postinsolvency settlement agreements, authorized by the court through an estimation process or otherwise 

allowed by the court.” AB 1054 § 3291(a)(1)(B). Accordingly, for the Debtors’ Plan to be confirmed 

and go effective, there must be a determination that the TCC’s constituency is satisfied in full. Thus, by 

definition there can be no made-whole claim. 

ii. There are No Impermissible Third Party Releases

To the extent the Objectors have raised issues with the scope of the releases set forth in 

Section 10.9(b) of the Debtors’ Plan, as noted in the Willkie Letter, those will be addressed. The 

Debtors’ Plan will be revised to make it clear that wildfire claimants must affirmatively opt-in to releases. 

Further, despite the TCC’s repeated statements that the Debtors’ Plan and the RSA 

require all wildfire claimants to execute a release of all claims in order to receive any distribution under 

the Debtors’ Plan (TCC Objection pp. 1, 20), that plainly is not the case. The RSA could not be clearer 

on this point. The Settlement Payment Condition in the RSA, which requires a release of potential madewhole claims against the Subrogation Claimants, applies only to consensual, voluntary settlements and 

not to any distribution under the Debtors’ Plan. Section 3(a)(iii) of the RSA provides that the Debtors 

shall: 

[U]pon entry into any settlement with any holder or holders of IP Claims 

that fixes the amount or terms for satisfaction of an IP Claim, including with 

respect to rights against a post-Effective Date trust established for the 

resolution and payment of such Claims, require, as a condition to payment 

or other distribution to or for the benefit of such holder pursuant to such 

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settlement or other agreement, that the holder of the IP Claim 

contemporaneously execute and deliver a release and waiver of any and all 

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

the Chapter 11 Cases, including any potential made-whole claims against 

present and former holders of Subrogation Claims, which release shall be 

in form and substance reasonably acceptable to the Debtors and Requisite 

Consenting Creditors. 

If a wildfire claimant elects to litigate and not voluntarily settle, all of its rights are preserved, including 

the right to pursue any made-whole claims against the Subrogation Claimants. 

Accordingly, neither the RSA nor the Debtors’ Plan will run afoul of applicable Ninth 

Circuit precedent, where the only non-debtor releases will be purely consensual. 

D. The Class of Subrogation Claims is an Impaired Class

The Ad Hoc Noteholders Committee argues that the Debtors are artificially impairing the 

class of Subrogation Claims and that such determination should not be made at this time. The Ad Hoc 

Noteholders Committee’s position is meritless — the Subrogation Claims Settlement contemplates 

settlement of all Subrogation Claims at a significant (45%) discount. Additionally, unlike other 

unsecured claimants, including the Noteholders, the treatment of the Subrogation Claims under the 

Debtors’ Plan does not provide for the payment of prepetition or postpetition interest. The Subrogation 

Claimants are not unimpaired simply because they have settled. By that line of thinking, the claims of 

the TCC’s constituency would also be considered unimpaired under the Elliott Plan as well. 

Regardless, the Court already addressed this at the September 24 Status Conference when 

it clearly indicated that the class of Subrogation Claims under the Debtors’ Plan is an impaired class. 

Specifically, the Court stated: 

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

class 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) 10:17-25. (Emphasis supplied). In light of the above, and the undisputed facts 

and circumstances that are obvious to all parties in interest and presented in the RSA Motion, the class 

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of Subrogation Claims is clearly an impaired class. 

E. THE RSA COMPLIES WITH SECTION 1125 OF THE BANKRUPTCY CODE

The RSA also satisfies the requirements of section 1125 of the Bankruptcy Code. Section 

1125(b) provides that “[a]n acceptance or rejection of a plan may not be solicited after the 

commencement of the case under this title . . . unless, at the time of or before such solicitation, there is 

transmitted . . . a written disclosure statement approved, after notice and a hearing, by the court as 

containing adequate information.” 11 U.S.C. § 1125(b).

Courts generally construe section 1125(b) narrowly and find that the provision should not 

by itself be a reason to restrict a debtor’s ability to reach consensual resolutions after the commencement 

of a chapter 11 case. See, e.g., Century Glove, Inc. v. First American Bank of New York, 860 F. 2d 94, 

101 (3d Cir. 1988). For example, courts have approved post-petition restructuring support agreements 

where, as here, the agreements require the parties to use commercially reasonable efforts to pursue 

confirmation of a specific plan of reorganization and not support any other alternatives. See, e.g., In re 

TK Holdings Inc., Case No. 17-11375 (BLS) (Bankr. D. Del. Dec. 13, 2017) [Docket No. 1359] 

(approving support agreement that required Debtors to support and take “all commercially reasonable 

steps necessary and appropriate” to facilitate approval and confirmation of the plan, disclosure statement, 

and global settlement); In re Energy Future Holdings Corp., Case No. 14-10979 (CSS) (Bankr. D. Del. 

Sept. 18, 2015) [Docket No. 6097] (approving plan support agreement requiring parties to use 

“commercially reasonable efforts” to obtain court approval of the settlement, disclosure statement, and 

plan).

In addition, courts have approved post-petition restructuring support agreements that 

were entered into in the context of plan negotiations or settlement agreements, and have recognized that 

such agreements comply with the requirements of section 1125(b). See, e.g., In re Energy Future 

Holdings Corp., Case No. 14-10979 (Bankr. D. Del. Sept. 18, 2015) [Docket No. 6097] (approving 

postpetition plan support agreement pursuant to which creditor agreed to vote in favor of plan provided 

there were no material modifications to the agreed upon plan); see also In re Indianapolis Downs, LLC, 

486 B.R. 286, 295 (Bankr. D. Del. 2013) (recognizing that parties could memorialize agreements reached 

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in support of plans because “Congress intended that creditors have the opportunity to negotiate with 

debtors and amongst each other . . . in a way that allows a Chapter 11 case to move forward.”); In re 

Heritage Org., L.L.C., 376 B.R. 783, 789–95 (Bankr. N.D. Tex. 2007) (agreement to vote for plan set 

forth in term sheet was not solicitation of official vote); In re Kellogg Square P’ship, 160 B.R. 336, 340 

(Bankr. D. Minn. 1993).

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IV. CONCLUSION

Here, sophisticated Subrogation Claimants have made a decision to substantially 

compromise their claims and, as an integral part of that compromise, to pursue and support the Debtors’ 

Plan. The Subrogation Claims Settlement and the RSA materially advance the administration of these 

Chapter 11 Cases and clearly represent a sound exercise of the Debtors’ business judgment. The Court 

should neither second guess that business judgment nor second guess the decision of the Subrogation 

Claimants. 

The Debtors request the Court approve the RSA Motion, overrule the remaining 

Objections, and grant such other relief to the Debtors as is necessary and appropriate.

WEIL, GOTSHAL & MANGES LLP

KELLER & BENVENUTTI LLP

By: /s/ Stephen Karotkin_____________

Stephen Karotkin

Attorneys for Debtors and Debtors in Possession

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