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Dennis F. Dunne (admitted pro hac vice) 

Samuel A. Khalil (admitted pro hac vice) 

MILBANK LLP 

55 Hudson Yards 

New York, New York 10001-2163 

Telephone: (212) 530-5000 

Facsimile: (212) 530-5219 

and 

Gregory A. Bray (SBN 115367) 

Thomas R. Kreller (SBN 161922) 

MILBANK LLP 

2029 Century Park East, 33rd Floor 

Los Angeles, CA 90067 

Telephone: (424) 386-4000 

Facsimile: (213) 629-5063 

Counsel for the Official Committee 

of Unsecured Creditors

UNITED STATES BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

In re: 

PG&E CORPORATION 

 - and - 

PACIFIC GAS AND ELECTRIC 

COMPANY,

Debtors.

Case No. 19-30088 (DM) 

Chapter 11 

(Lead Case) 

(Jointly Administered) 

OBJECTION OF THE OFFICIAL 

COMMITTEE OF UNSECURED 

CREDITORS TO THE DEBTORS’ 

SUBROGATION SETTLEMENT 

AND RSA MOTION 

Date: October 23, 2019 

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

Place: United States Bankruptcy Court 

 Courtroom 17, 16th Floor 

 450 Golden Gate Avenue 

 San Francisco, CA 94102 

Re: Docket No. 3992 

 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 Official Committee of Unsecured Creditors (the “UCC”) hereby objects (the 

“Objection”) to the Motion Pursuant to 11 U.S.C. §§ 363(b) and 105(a) and Fed. R. Bankr. P. 

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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 [Docket No. 3992] (the “RSA Motion”).1

 In 

support of its Objection, the UCC respectfully states as follows: 

OBJECTION 

1. By the RSA Motion, the Debtors seek approval of a far-reaching settlement that 

would not only allow $11.0 billion in subrogation claims (the “Subrogation Claim Allowance”) but 

would also irrevocably obligate the Debtors to pay those claims in full in cash (the “Full Pay Plan 

Treatment”) with no fiduciary out. While the proposed settlement represents progress in these 

cases, the Debtors’ proposal to commit to the Full Pay Plan Treatment is both premature and goes 

too far at this stage of these cases. 

2. The RSA Motion extolls the many benefits the Debtors are supposed to obtain 

through the Subrogation Claim Allowance, but largely ignores a fundamental flaw in the Debtors’ 

commitment to the Full Pay Plan Treatment—namely, that such treatment may only be appropriate 

(and any plan that incorporates it may only be confirmable) if the Debtors prove to be solvent, but 

the RSA fails to provide the Debtors with any right to vary from that treatment even if the Debtors 

prove to be (or become) insolvent. To the contrary, the RSA requires the Debtors to pursue a plan 

containing the Full Pay Plan Treatment—and no other—even if the Debtors are insolvent and 

therefore (by definition) unable to provide like treatment to all other similarly situated creditors. 

The UCC maintains that the Debtors are solvent and unsecured creditors in its constituency are 

entitled to payment in full of their respective claims. Indeed, the two competing plans proposed in 

the cases are premised upon the Debtors’ being solvent. Nonetheless, the UCC as a fiduciary for 

 

1

 Capitalized terms not otherwise defined herein have the meanings ascribed to them in the RSA Motion. 

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the general unsecured creditors must evaluate the consequences of the Court’s approval of the RSA 

Motion under all circumstances. And, absent a binding determination that the Debtors are solvent 

(which presumably cannot occur at least until the claims estimation process is complete), the RSA 

would lock the Debtors into the obligation to pursue what could be a facially discriminatory—and 

therefore unconfirmable—plan. The Debtors should not be taking on that commitment, and the 

RSA Motion therefore should be denied. 

3. Moreover, by restricting both the Consenting Creditors and the Debtors from 

engaging in negotiations with other parties, the RSA undermines the Court’s recent order 

terminating the Debtors’ exclusivity. The Consenting Creditors are, of course, free to partner with 

whomever they choose and to vote for any plan that they prefer, subject to applicable law. It is an 

entirely different matter, however, for the Court to be asked to formally order that their votes be 

locked up to a particular plan, especially in light of the decision to terminate exclusivity and that 

the “competing” plan offers the Consenting Creditors the same allowed claim. It is likewise 

inappropriate to provide the Consenting Creditors with a potential post-petition claim as a means 

to enforce their economic recovery against the rest of the creditor constituency. Rather than 

encouraging the parties in interest to engage and come to a consensual resolution, the RSA, if 

approved, will only serve to further harden the parties’ positions and make an agreed upon 

resolution that much more difficult to achieve. 

A. The RSA Improperly Locks in the Subrogation Claim Allowance and the Full Pay 

Plan Treatment for All Purposes 

4. The proposed Subrogation Claim Allowance would allow the Subrogation Claims 

in the aggregate amount of $11.0 billion (the “Subrogation Settlement”). The UCC does not have 

reason to believe that the proposed allowed amount is not a fair and reasonable compromise, but 

the UCC objects to the terms of the Subrogation Settlement that would obligate the Debtors to 

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commit indelibly to providing the Full Pay Plan Treatment to the Subrogation Claims under any 

and all future circumstances. 

5. Under the Subrogation Settlement, the $11.0 billion Subrogation Claim Allowance 

is to be binding for all purposes in the Debtors’ chapter 11 cases. See RSA §4 (the Subrogation 

Claim Allowance “shall be binding in the Chapter 11 Cases, and shall survive termination of [the 

RSA], except as otherwise expressly provided” in the RSA).2 Moreover, the Debtors are proposing 

to commit that the only plan they can pursue in these cases (or at least until the RSA is terminated) 

will pay the allowed Subrogation Claims in full in cash or, solely at the election of individual 

holders of Subrogation Claims, in a combination of cash and reorganized equity. See RSA §§ 4, 

3(a)(ix). 

6. In other words, upon approval of the Subrogation Settlement and the RSA, the 

Debtors will be committed to pursuing a plan that will entitle the Subrogation Claimants to $11.0 

billion of cash, regardless of whether the Debtors prove to be solvent. Although the Consenting 

Creditors have the option to terminate the RSA if the Debtors prove to be insolvent, the Debtors do 

not have the same right. See n.2 infra. The RSA prohibits the Debtors from supporting any plan 

other than the Debtors’ plan (which is defined to include any amendments or modifications). See 

RSA § 1(a) (definition of “Plan”). The RSA also prohibits the Debtors from proposing a plan that 

deviates from the RSA. RSA § 3(b)(ii) (“the Company shall not . . . propose, support, solicit, 

encourage, or participate in any chapter 11 plan or settlement of the Subrogation Claims other than 

as set forth herein . . . .”). The Consenting Creditors therefore have the ability to keep the Debtors 

“locked in” to the Full Pay Plan Treatment even if the Debtors prove to be insolvent.

 

2

 The “otherwise provided” language refers to the Debtors’ right to terminate the RSA upon an uncured 

breach by the Consenting Creditors holding at least 5% of the RSA Claims and the right of the 

Consenting Creditors to terminate the RSA if they determine that the Debtors are insolvent or unable to 

raise sufficient funds to satisfy the Subrogation Claim Allowance. See RSA § 5(f)(iii). 

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7. In addition, if the Debtors breach the RSA (which, again, does not provide a 

fiduciary out for the Debtors), the Consenting Creditors are entitled to specific performance. See 

RSA § 16. The RSA is unclear on whether, if it is approved and the obligations thereunder become 

administrative obligations of the Debtors’ estates,3

 the Consenting Creditors may be able to assert 

an $11.0 billion claim, and entitled to payment in full in cash, under any alternative plan that might 

be filed in these cases. The right to assert such a claim alone may put the Debtors’ ability to 

confirm any plan in these cases at the mercy of the Consenting Creditors. At a minimum, the RSA 

needs to be clarified to make clear what happens with respect to the Subrogation Claim Allowance, 

and what rights the Consenting Creditors would have, if the Court confirms an alternative plan. 

8. Such clarification is especially important in light of the Court’s recent termination 

of the Debtors’ exclusivity and allowing the Official Committee of Tort Claimants and the Ad Hoc 

Committee of Senior Unsecured Noteholders to file their own joint plan for the Debtors (the 

“Alternative Plan”). Although the Alternative Plan also provides Subrogation Claimants with 

$11.0 billion of value, the distribution provided to them thereunder consists of cash and equity 

without giving them the option to choose the distribution currency. Indeed, the Subrogation 

Claimants have already expressed their lack of support for the Alternative Plan. See Objection of 

the Ad Hoc Group of Subrogation Claim Holders to the Joint Motion of the TCC and AHG to 

Terminate the Debtors’ Exclusive Periods Pursuant to Section 1121(d)(1) of the Bankruptcy Code

[Docket No. 4102]. Thus, the estates may find themselves in the ironic situation of paying the 

Subrogation Claimants $11.0 billion under the Alternative Plan, while facing an administrative 

claim of the Consenting Creditors for damages stemming from the breach of the RSA. 

 

3

 See, e.g., In re Wright, 256 B.R. 858 (Bankr. W.D. N.C. 2001) (holding that damages arising from 

post-petition breach of an assumed lease are entitled to administrative priority); In re Sporting Way, 

Inc., 126 B.R. 110 (Bankr. M.D. Fla. 1991) (same). 

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B. The RSA Improperly Locks Up Votes and Makes Reaching a Consensual Resolution 

More Difficult 

9. The Court terminated the Debtors’ exclusivity, in part, because it believed that “[a] 

dual-track plan course going forward may facilitate negotiations for a global resolution and narrow the 

issues which are in legitimate dispute.” See Order Granting Joint Motion of the Official Committee of 

Tort Claimants and Ad Hoc Committee of Senior Unsecured Noteholders to Terminate the Debtors’ 

Exclusive Periods Pursuant to Section 1121(d)(1) of the Bankruptcy Code (the “Exclusivity 

Termination Order”) [Docket No. 4167] at 3. Rather than fostering negotiations, however, the RSA 

restricts the ability of the Debtors to engage in negotiations. RSA § 3(b)(ii) (“the Company shall 

not . . . propose, support, solicit, encourage, or participate in any chapter 11 plan or settlement of 

the Subrogation Claims other than as set forth herein. . . .”).4

 The RSA also prohibits the 

Consenting Creditors from “participate[ing] in the formulation of . . . any Alternative Restructuring 

or settlement of the Subrogation Claims other than as set forth in the RSA” (RSA § (2)(b)(ii)), 

prohibits the Consenting Creditors from voting for any plan other than the Debtors’ plan and 

requires that the Consenting Creditors vote against any alternative plan. RSA § 2(a)(iii). By 

restricting the parties’ ability to negotiate, the RSA unnecessarily hardens the parties’ positions 

and makes it more difficult to reach a consensual resolution of these cases, thus undermining the 

entire purpose of the Exclusivity Termination Order. 

10. Approving the RSA at this time would make the termination of exclusivity into a 

pyrrhic victory, as it would tie the Debtors’ hands before numerous material case controversies have 

been resolved and commit the Consenting Creditors to voting on a particular plan before a disclosure 

statement has been filed, let alone approved. Because approving the RSA would significantly 

 

4

 The RSA also requires the Debtors to give priority treatment to Subrogation Claims (RSA 3(b)(iii)) 

and to obtain releases from the wildfire victims (RSA 3(a)(iii)), thus restricting the Debtors’ ability to 

negotiate these plan terms. 

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undermine the efforts to reach a consensual resolution that the Exclusivity Termination Order was 

intended to foster, the RSA Motion should be denied. 

C. The RSA Locks the Debtors into a Potentially Unconfirmable Plan 

11. By locking in the Full Pay Plan Treatment for the $11.0 billion of Subrogation 

Claims, the RSA may also force the Debtors to seek confirmation of an unconfirmable plan or risk 

incurring damages to the Consenting Creditors. 

12. As discussed above, although the RSA grants a termination right to the Consenting 

Creditors upon their determination of the Debtors’ insolvency, the Debtors do not have a 

corresponding right. Thus, even if the Debtors prove to be insolvent, their Plan must still provide 

$11.0 billion in cash in satisfaction of the Subrogation Claims, as well as pay up to $55 million of 

professional fees incurred by the Ad Hoc Subrogation Group. The RSA leaves the Debtors with 

no “out” in the event of their insolvency. 

13. Although the UCC presently does not believe the wildfire claims will render the 

debtors’ insolvent, it is nonetheless a possibility for which the UCC as a fiduciary must account. 

If the estimation proceeding were to find the Debtors liable for billions of dollars more than 

anybody expects, or the state court were to find the Debtors liable for substantial damages arising 

from the Tubbs Fire, or post-petition wildfires were to occur and result in additional unsecured or 

administrative expense claims, the trajectory of the cases could be far different and the claims of 

other unsecured creditors may be impaired, while the Debtors will remain obligated to pay the 

Subrogation Claimants in full in cash (plus professional fees). As other unsecured creditor classes 

are not likely to vote in support of such a plan, the Debtors would have to seek confirmation under 

section 1129(b)(1) of the Bankruptcy Code. However, that would not be possible as the plan would 

unfairly discriminate against the Debtors’ unsecured creditors other than the holders of 

Subrogation Claims. See, e.g., In re Tucson Self-Storage, Inc., 166 B.R. 892 (B.A.P. 9th Cir. 

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1994) (denying confirmation under section 1129(b)(1) where the plan unfairly discriminated 

against a class of unsecured deficiency claims). 

14. Finally, the RSA requires that, to the extent the Debtors enter into a settlement with 

any individual wildfire claimant, “as a condition to payment or other distribution” to such claimant, 

the Debtors must demand that each such holder “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.” RSA § 3(a)(iii). Moreover, the RSA requires that this condition 

be set forth in the Confirmation Order. See RSA § 3(v)(B). This is an issue for the TCC to 

determine and the UCC does not necessarily object to the proposed releases provided there is no 

recourse by the Consenting Creditors against the estates or reorganized debtors regardless of 

whether the proposed releases in the Subrogation Settlement are actually obtained. 

CONCLUSION 

For the reasons set forth above, the UCC respectfully requests that the Court: (i) sustain 

the Objection; (ii) deny the RSA Motion; and (iii) grant such other relief as may be appropriate.

Dated: October 16, 2019 

MILBANK LLP 

/s/Gregory A. Bray . DENNIS F. DUNNE 

SAMUEL A. KHALIL 

GREGORY A. BRAY 

THOMAS R. KRELLER 

Counsel for the Official Committee of 

Unsecured Creditors 

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