Theresa Mcdonald v. PG&E Corporation

Background

PG&E Corporation and Pacific Gas and Electric Company, referred to collectively as the Debtors, filed chapter 11 bankruptcy cases. The bankruptcy court confirmed the Debtors’ reorganization plan on June 20, 2020, and the plan became effective on July 1, 2020. Theresa Ann McDonald appealed the confirmation order to the district court.

The plan included settlements of wildfire-related claims and other liabilities. It provided approximately $13.5 billion in cash, stock, and other assets for the benefit of fire-victim claimants. After the plan became effective, the Reorganized Debtors made more than $42 billion in disbursements, funded several trusts, issued approximately 1.5 billion new shares, and raised billions of dollars through new debt and equity offerings.

Legal Standard

The court applied the doctrine of equitable mootness. This doctrine allows a court to dismiss a bankruptcy-plan appeal when carrying out the requested relief would be impractical or unfair because the plan has already been substantially implemented and third parties have relied on it.

The Ninth Circuit considers four factors: whether the appellant sought a stay, whether the plan was substantially consummated, whether changing the plan would harm third parties, and whether the court could provide effective and fair relief without disrupting the plan.

Court’s Analysis

First, the court found that McDonald did not seek a stay of the confirmation order. McDonald did not dispute that she never attempted to obtain a stay. The court rejected her interpretation that the confirmation order prevented her from seeking one and held that her failure to seek a stay alone was sufficient reason to dismiss the appeal.

Second, the court found that the plan had been substantially consummated. Under the Bankruptcy Code, substantial consummation includes transferring substantially all property required by the plan, the debtor or successor taking over the relevant business or property, and beginning distributions under the plan. The court relied on the Debtors’ distributions, trust funding, capital raises, securities issuances, and other completed transactions. The court also noted that the Fire Victim Trust had received more than $5 billion in cash and nearly half a billion shares of new common stock.

Third, the court found that the requested relief would harm third parties. Reversing the confirmation order would undermine interdependent settlements and affect more than 80,000 fire-victim claimants, thousands of creditors, public shareholders, and parties that had provided new debt financing or equity investment. The court also stated that undoing the plan would likely delay fire-victim distributions and could interfere with the Debtors’ ability to comply with A.B. 1054 and obtain the benefits of the Go-Forward Wildfire Fund.

Finally, the court concluded that it could not fashion effective and equitable relief. The transactions and settlements were too complex to unwind reasonably, and clawing back distributions and other transfers could create an uncontrollable situation for the bankruptcy court.

Disposition

The court GRANTED the Reorganized Debtors’ motion to dismiss the appeal. The clerk was directed to terminate the appeal and close the case. Judge Haywood S. Gilliam, Jr. did not decide the underlying objections to the bankruptcy plan because the appeal was dismissed on equitable-mootness grounds.