By Hudson Sangree

The $13.5 billion settlement that Pacific Gas and Electric struck with wildfire victims may be in trouble, threatening one of the main components of the utility’s plan to exit bankruptcy by the end of June.

On Monday, the official Tort Claimants Committee (TCC), which represents the majority of the case’s 70,000 fire victims, petitioned U.S. Bankruptcy Judge Dennis Montali to allow it to send out a letter asking victims to postpone voting on the utility’s Chapter 11 reorganization proposal until at least May 1 because of “problems and risks the TCC has identified with PG&E’s plan.”

PG&E and lawyers representing the case’s second-largest group of fire victims objected. Montali scheduled a hearing on the matter for Tuesday morning.

The surprise move came after three members of the TCC, composed of 11 fire victims, resigned so they could openly criticize PG&E’s plan to fund the $13.5 billion trust with $6.75 billion in company stock. They fear the shares could decline in value, especially now that the COVID-19 coronavirus pandemic is pummeling stock markets worldwide.

“The TCC believes that the … coronavirus’ economic ripple effect presents an unforeseeable and significant risk that the shares of stock will not have the value necessary to match the $13.5 billion that PG&E has stated would be available to pay fire victim claimants,” the committee’s lawyers wrote.

The victims’ attorneys had been trying to get PG&E to guarantee the full amount, regardless of stock market changes, but mediation to resolve the matter broke down March 27, attorney Robert Julian said in the motion to Montali.

“The TCC believes the parties have not made any substantial progress, and the TCC believes it is important that the proposed letter be sent to fire victim claimants disclosing such issues,” it said. “The information provided in the proposed letter may have a material impact on how and when fire victim claimants vote.”

‘Complete Lack of Transparency’

In a statement Monday, PG&E took issue.

“The TCC’s filing is an attempt to change the settlement it agreed to despite the fact that the agreement has the broad support of the parties and the governor’s office and is the best and fastest path to getting victims paid,” the utility said. “The TCC’s effort to recut the deal puts at risk their clients’ ability to be paid quickly.”

The TCC’s move appeared to be partly a response to a growing grassroots movement among wildfire victims to oppose the $13.5 billion deal reached in December. (See PG&E Reaches $13.5B Deal with Wildfire Victims.)

Lawyers stand to be paid 30 to 40% of the trust amount.

The latest fire victim to resign from the TCC told the Associated Press that attorneys had violated their fiduciary duty to clients by hiding the risks of funding half the trust with PG&E stock.

“They’re just not breaching their fiduciary duty; they’re blowing it up,” Karin Gowins said. “There has been a complete lack of transparency.”

Gowins was the comptroller of Paradise, Calif., the town of 27,000 largely destroyed by the Camp Fire in November 2018 after a PG&E high-voltage line ignited the state’s deadliest and most destructive wildfire, killing 85.

State fire investigators have also determined that PG&E equipment started the deadly Northern California wine country wildfires of October 2017 and the Butte Fire, in the Sierra Nevada foothills near Sacramento, in September 2015.

Since filing for bankruptcy in January 2019, PG&E has reached settlements with fire victims, insurance companies and local governments worth $25.5 billion and won Gov. Gavin Newsom’s approval for its restructuring plan. The dispute over the fire victims’ settlement threatens to undermine its efforts.

Plaintiffs’ Lawyers at Odds

In its proposed letter, which requires the judge’s approval, the TCC says PG&E revised its agreement with fire victims by increasing its debt load and lowering the amount of cash it expects to raise by issuing stock. The changes were made without fire victims’ consent, it says.

“Both of those changes impact the value of PG&E’s stock,” it says.

The TCC’s proposal would give PG&E until April 28 to resolve the outstanding issues; lawyers would notify victims of the status of negotiations by May 1.

Disclosure statements outlining PG&E’s plan and ballots are being sent to fire victims and other creditors, with a voting deadline of May 15.

In a motion opposing the TCC’s request, two lawyers representing about 7,000 fire victims say the motion is an ill-timed attempt to sway the voting.

“The content of the proposed letter interferes with the bankruptcy principle that claimants should be free to exercise their voting rights after being provided a neutral statement approved by the court. The court should deny TCC’s request that it put its ‘finger on the scale’ by entering an order approving the proposed letter after voting has already commenced,” Gerald Singleton and Richard Marshack said.

The TCC lawyers, however, argued the proposal is a familiar move in bankruptcy proceedings.

“Committees often inform their constituents of their views on various aspects of bankruptcies,” they said. “Mass tort cases are no exception.”

PG&E is trying to exit bankruptcy by June 30 to participate in a state wildfire insurance fund established last year. Its agreement with Newsom would allow the state or a third party to take over the utility if it doesn’t meet that deadline. Montali has yet to approve that agreement, which he’s scheduled to hear Tuesday.