In re: PG&E Corporation v. Fire Victum Trust

Background

PG&E Corporation and Pacific Gas and Electric Company filed chapter 11 bankruptcy cases. After negotiations among stakeholders, the bankruptcy court confirmed a reorganization plan on June 20, 2020, and the plan became effective on July 1, 2020.

The plan created the Fire Victim Trust to administer and pay wildfire-related claims. The plan and the Fire Victim Trust Agreement allowed the trust to reduce a claimant’s payment by amounts reasonably recoverable from insurance. They also required wildfire claimants to use available insurance recoveries before seeking compensation from the trust. Paradise Unified School District and other wildfire victims appealed the confirmation order, challenging the application of those provisions to their claims.

Legal Standard

The district court applied the Ninth Circuit’s doctrine of equitable mootness. This doctrine can prevent review of a bankruptcy-plan appeal when the plan has been carried out so extensively, and the related transactions are so complex, that undoing them would be unfair or impractical. The court considered whether the appellants sought a stay, whether the plan had been substantially completed, whether granting relief would harm third parties, and whether the court could provide effective and fair relief without disrupting the plan.

Discussion

The appellants acknowledged that they had not sought a stay of the confirmation order. They argued that a stay was unnecessary because they were not trying to undo the entire plan and that stopping PG&E’s emergence from bankruptcy could have threatened the reorganization. The court found that the appellants did not adequately explain their failure to seek a stay. Because a stay would have notified other parties that the plan might later be changed, this factor favored dismissal.

The court also found that the plan had been substantially completed. The reorganized debtors had distributed billions of dollars, funded the Fire Victim Trust and the Subrogation Wildfire Trust, issued approximately 1.5 billion shares, completed new debt and equity offerings, and paid nearly $5 billion to the Go-Forward Wildfire Fund. The trusts’ trustees had been appointed, claim review had begun, and certain legal claims had been transferred for the benefit of wildfire victims.

The court determined that changing the insurance provisions could reduce the recovery available to other wildfire claimants and would affect parties who had relied on the plan, including creditors, shareholders, and investors. The court noted that the plan already protected claimants who made reasonable efforts to recover insurance proceeds and allowed exceptions or assistance in specified circumstances. Exempting the appellants from the insurance requirements without applying those provisions would therefore be unfair to other claimants.

Finally, the court found that it could not provide meaningful relief without rewriting important financial terms of the plan. Doing so could undermine the two-trust structure, adversely affect other claimants, and disrupt billions of dollars in distributions and financing transactions. The court concluded that the transactions were too complex and interconnected to undo.

Disposition

The court granted the Fire Victim Trust’s motion to dismiss the appeal. The clerk was directed to terminate the appeal and close the case. The court did not decide whether the challenged insurance provisions were legally valid; it dismissed the appeal based on equitable mootness.