Official Committee of Tort v. PG&E Corporation

Background

PG&E Corporation and Pacific Gas and Electric Company filed voluntary Chapter 11 bankruptcy cases on January 29, 2019. Their reorganization plan was confirmed by the Bankruptcy Court on June 20, 2020, and became effective on July 1, 2020. The plan included a definition of “Insurance Deduction” for Class 10A-II claims. That definition generally deducted cash payments received from insurance policies, except payments from Side A policies, when calculating the shares issued for certain claims.

The appellant was the court-appointed lead plaintiff in a pending securities class action against the debtors, certain current and former directors and officers, and investment banks. The appellant filed individual and class proofs of claim in the bankruptcy cases based on the alleged federal securities violations.

Issues and arguments

The appeal challenged the Bankruptcy Court’s finding that the plan’s Insurance Deduction definition was fair and equitable under § 1129(b)(1) of the Bankruptcy Code. The dispute focused on whether payments from Side B indemnification coverage should be deducted from Class 10A-II claim recoveries.

The appellant argued that the deduction was not necessary to prevent double recovery because the plan’s conversion factors and the current PG&E share price made recovery of more than the full claim amount nearly impossible. The appellant also argued that Side B insurance proceeds were not property of the bankruptcy estate and therefore should not reduce the recovery, except when necessary to prevent double recovery. The appellant proposed a different Insurance Deduction definition.

Court’s analysis

The District Court reviewed the Bankruptcy Court’s factual findings for clear error. Under that standard, the reviewing court could not reverse merely because it might have weighed the evidence differently; it could reverse only if left with a firm conviction that the Bankruptcy Court had made a mistake.

The District Court concluded that the Bankruptcy Court plausibly found that the deduction could prevent double recovery. The value of the shares that claimants would eventually receive could not be known on the plan-confirmation date. Although the shares might be worth less than the claims, they could also increase in value. The appellant acknowledged that if PG&E’s trading price reached a certain level by the time Class 10A-II claimants received shares, an insurance deduction could be needed to ensure that claimants did not recover more than 100 percent of their claims.

The District Court also noted that the appellant had negotiated and agreed to the plan’s conversion formula. Under the plan, the shares issued for Class 10A-II claims would provide full and final satisfaction, settlement, release, and discharge of those claims. The District Court declined to reweigh the evidence or rewrite the plan’s Insurance Deduction definition.

The court further explained that the Bankruptcy Court’s finding did not depend on whether the Side B proceeds were property of the bankruptcy estate. The Bankruptcy Court had assumed, for purposes of its analysis, that the payments were not estate property.

Disposition

The court AFFIRMED the Bankruptcy Court’s fair-and-equitable ruling concerning the plan’s Insurance Deduction definition. It also DENIED AS MOOT the Official Committee of Tort Claimants’ motion to dismiss the appeal and directed the Clerk to terminate and close the case.