The International Church of the Foursquare Gospel v. PG&E Corporation

Background

PG&E Corporation and Pacific Gas and Electric Company, referred to collectively as the Debtors or Reorganized Debtors, filed chapter 11 bankruptcy cases. The bankruptcy court confirmed the Debtors’ reorganization plan on June 19, 2020. The International Church of the Foursquare Gospel and certain wildfire victims appealed that confirmation order in this district court.

The appeal challenged the plan’s “Made Whole Release Provision.” That provision required wildfire victims who voluntarily accepted settlement payments from the Fire Victim Trust to waive and release claims seeking additional recovery under the made-whole doctrine against their insurers. The provision was part of a settlement under which the Debtors resolved more than $20 billion in asserted subrogation claims for approximately $11 billion. The court stated that this release was an integral condition of that settlement and that the settlement was important to confirmation of the plan.

By July 2020, the Reorganized Debtors had distributed more than $42 billion, funded the Fire Victim Trust and Subrogation Wildfire Trust, made other payments required by the plan, issued approximately 1.5 billion new shares, and raised billions through new debt and equity offerings. The Fire Victim Trustee and claims administrator had also begun reviewing claims for distribution.

Legal standard

The court applied the Ninth Circuit’s equitable-mootness doctrine. This doctrine can prevent a court from hearing a bankruptcy-plan appeal when the plan’s transactions have become so complex or difficult to unwind that the Debtor, creditors, and third parties are entitled to rely on the plan’s finality. The court considered four factors: whether the appellants sought a stay, whether the plan was substantially consummated, whether the requested relief would harm third parties, and whether the bankruptcy court could provide effective and fair relief without disrupting the plan.

Court’s analysis

First, the appellants had not sought a stay of the confirmation order before filing their appeal. They did not dispute that point, although they said they were filing a stay motion at the same time as their opposition to dismissal. The court held that this did not satisfy the Ninth Circuit’s requirement that an appellant diligently pursue available remedies to obtain a stay. The appellants offered no explanation for the delay. The court said this failure alone was sufficient reason to dismiss the appeal.

Second, the court found that the plan had been substantially consummated. Substantial consummation means transferring all or nearly all property required by the plan, having the Debtor or its successor take over the business or property covered by the plan, and beginning distributions under the plan. The court found those conditions met based on the completed capital raising, distributions, trust funding, stock issuances, and payment to the Go-Forward Wildfire Fund.

Third, the court found that granting the requested relief would harm third parties. The challenged release was part of the settlement that allowed the Debtors to reduce the asserted subrogation claims and confirm the plan. Thousands of parties had voted for the plan, received cash, stock, or debt under it, or purchased new securities to fund the reorganization. Those parties relied on the plan, the settlements, and the release provision.

Fourth, the court concluded that it could not provide effective and fair relief without disrupting the plan. Although the appellants characterized their challenge as narrow, meaningful relief would require invalidating an important part of the subrogation settlement. The court stated that changing the release would materially and adversely affect the subrogation claimants and undermine the settlement’s foundation. Because billions had been distributed, new financing had been incurred, shares had been issued and were trading, and many parties had acted in reliance on the confirmation order, the court found that the transactions could not be undone.

Disposition

The court GRANTED the Reorganized Debtors’ motion to dismiss the appeal. The Clerk was directed to terminate the appeal and close the case. The court dismissed the appeal on equitable-mootness grounds and did not decide the underlying validity of the Made Whole Release Provision.