In re: PG&E Corporation and Pacific Gas and Electric Company

Background

PG&E Corporation and Pacific Gas and Electric Company filed Chapter 11 bankruptcy cases in 2019. After the Bankruptcy Court confirmed PG&E’s reorganization plan, DRRT claimants filed proofs of claim based on alleged losses from purchases of PG&E debt and equity securities. The claims arose from a securities class action alleging that PG&E and others misled investors about wildfire-safety practices.

PG&E later filed omnibus objections seeking to disallow certain securities claims as barred by statutes of repose. The DRRT claimants did not timely oppose those objections, and the Bankruptcy Court entered orders disallowing certain DRRT claims.

DRRT then sought relief under Federal Rule of Civil Procedure 60(b)(1), which permits relief from a final order for reasons including mistake, inadvertence, surprise, or excusable neglect. DRRT argued that it had not opened or processed the objections, which had been sent by regular first-class mail, until after the deadlines. PG&E opposed the request.

Bankruptcy Court ruling and appeal

The Bankruptcy Court granted DRRT’s request and reinstated its claims insofar as they asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. PG&E appealed that ruling to the district court.

District court analysis

The district court reviewed the Bankruptcy Court’s decision for abuse of discretion. Under that standard, the reviewing court first determines whether the lower court used the correct legal rule and then considers whether its application of that rule was illogical, implausible, or unsupported by the record.

The district court rejected PG&E’s argument that the Bankruptcy Court committed a legal error simply by discussing the underlying merits before deciding whether Rule 60(b) relief was warranted. Although the Bankruptcy Court discussed the merits extensively and stated that the underlying order was erroneous, the district court concluded that the record did not establish a categorical legal error because the Bankruptcy Court identified Rule 60(b)(1) and cited the applicable excusable-neglect authority.

The district court nevertheless held that the Bankruptcy Court abused its discretion by failing to adequately address and make findings concerning the required Pioneer factors. Those factors are: the danger of prejudice to the opposing party, the length of the delay and its effect on the proceedings, the reason for the delay including whether it was in good faith, and the general circumstances surrounding the delay. The district court noted that the Bankruptcy Court never made an actual finding of excusable neglect or explained why the factors supported relief.

Disposition

The district court REVERSED the Bankruptcy Court’s grant of DRRT’s Rule 60(b) motion and REMANDED the matter for further proceedings consistent with the order. The Bankruptcy Court was directed to conduct the required analysis in the first instance. The district court also noted that the Bankruptcy Court had not made findings on DRRT’s Rule 60(b)(6) argument and had expressly declined to reach its Rule 60(b)(3) argument; if either provision is considered on remand, the Bankruptcy Court should explain its ruling consistently with Ninth Circuit precedent. The clerk was directed to remand the appeal to the Northern District of California Bankruptcy Court and close the district-court case.