By Hudson Sangree

The judge overseeing PG&E’s massive bankruptcy said he wouldn’t approve a letter that lawyers for wildfire victims want to send asking the victims to hold off voting on the utility’s Chapter 11 reorganization proposal.

The victims’ lawyers can send the letter independently, but a court endorsement would be inappropriate and would only cause confusion in a balloting process that’s already complex enough, said U.S. Bankruptcy Judge Dennis Montali in a ruling issued late Tuesday afternoon. Parties in bankruptcies are free to solicit support for their point of view.

“A massive undertaking for sending voluminous materials and soliciting votes on the plan is well-underway,” Montali said. “Hundreds, if not thousands, of members of the class have already voted.

“The [Tort Claimants Committee] apparently does not want to upset those votes, but it is beyond doubt that confusion will reign if the court permits the proposed letter to go out, leaving countless fire victims confused even more than they might be now. Are their cast votes valid? Should they ask to withdraw them? And what happens if there is a pause, and voters do not recast their votes in time?”

“The court is satisfied that agreeing to the TCC’s request will cause more harm than good, and court-approval of its proposal is ill-advised and must be rejected,” the judge said.

Lawyers in PG&E’s bankruptcy case argued Tuesday morning about whether the court should approve a letter to more than 70,000 fire victims informing them of potential flaws in the $13.5 billion settlement that PG&E agreed to in December.

The main problem, the fire victims’ attorneys told federal Judge Dennis Montali, is that the $6.75 billion in PG&E stock promised in the deal may be worth far less because of PG&E’s stock volatility, exacerbated by its heavy debt load and the coronavirus pandemic.

Utility stock is supposed to fund half the victims’ $13.5 billion trust, but the dollar amount isn’t guaranteed — only the percentage of PG&E shares allocated, lawyers explained. At the time the deal was reached, it was anticipated that the shares, amounting to a 21% equity stake in the company, would be worth about $6.75 billion.

That may no longer be the case, victims’ attorney Robert Julian told Montali. Another lawyer estimated the shares would be worth only $4.85 billion, he said.

Julian said he didn’t necessarily agree with such a low an estimate. Even so, he said, the case’s official Tort Claimants Committee (TCC), which he represents, no longer could support the settlement plan and wants fire victims to hold off on voting for PG&E’s Chapter 11 reorganization proposal until the stock issue and other matters can be resolved. (See Fire Victims Challenge PG&E Deal as Vote Looms.)

He accused PG&E at one point of planning to postpone funding the trust with stock until the end of the year as a way to cushion current shareholders from the coronavirus impact. Victims were told previously that the trust would fund in August, he said.

In his ruling, Montali said all the issues raised by the TCC were known when he approved PG&E’s disclosure statement three weeks ago and should have been dealt with then. (See PG&E Tries to Put Bankruptcy Plan in Layman’s Terms.)

‘This Silly Letter’

The proposed letter, as it was filed with the court on Monday, would have asked fire victims to hold off voting for PG&E’s Chapter 11 plan until May 1, but plaintiffs’ lawyers backed off that request Tuesday and suggested April 25 as a deadline to try to negotiate the issues while keeping victims informed by mail.

“We want the truth to be told to the victims,” Julian said.

Other creditor groups that settled with PG&E, including insurance companies and hedge funds, will receive all-cash payments, Julian noted. “Fire victims are the only ones standing with this risk of not getting paid or not getting what they bargained for,” he said.

PG&E lawyer Stephen Karotkin called “this silly letter he wants to send out” a negotiating tactic by Julian and other victims’ lawyers to see if they can get a better deal than the settlement agreement they reached months ago after lengthy negotiations.

“Enough is enough on this issue” of guaranteeing the value of PG&E’s stock, Karotkin said.

PG&E’s plan was recently outlined in a disclosure statement and sent to tens of thousands of creditors along with ballots for the creditors’ — including fire victims — vote on the plan. At this point, any party is free to try to persuade other creditors to vote yes or no, Karotkin said.

Julian and the other TCC attorneys want the court to approve the letter as a shield against malpractice claims later on, he said. Karotkin didn’t oppose the letter but argued strongly against the court adding it’s “imprimatur” by approving it before it is sent to victims.

“[Mr. Julian’s] a big boy. Let him make a decision whether he wants to send it out,” Karotkin told the judge.

‘A Pot of Gold’

Montali said he would take a day or two to consider the arguments before issuing a written ruling, but he made his decision hours later

With the courthouse closed due to coronavirus, the hearing took place during a teleconference frequently interrupted by technical glitches. Some participants were in New York, others in San Francisco. The judge, apparently calling from home, was disconnected twice.

The bankruptcy hearings, with dozens of participants, have continued by phone during the state’s coronavirus lockdown because of the tight deadline PG&E faces.

PG&E is trying to end its bankruptcy by June 30 to take advantage of a state wildfire insurance fund and to avoid a state takeover. Montali approved an agreement Tuesday between PG&E and California Gov. Gavin Newsom that would allow the state or a third party to purchase the company if it doesn’t complete its reorganization by the end of June. (See PG&E Deal with Gov. Allows for Utility’s Sale.)

May 15 is the designated end for voting on the reorganization plan. The June 30 deadline prevents what would otherwise be an ordinary extension of the bankruptcy proceedings, Montali said. The coronavirus has resulted in courts and government agencies extending many other deadlines, he noted.

The strict timeline that PG&E is under could be jeopardized by a growing grassroots movement among fire victims to reject PG&E’s offer.

Recently, three members of the 11-member TCC, made of up of fire victims, resigned so they could openly criticize the $13.5 billion settlement proposal as a poor deal. One said the TCC’s lawyers had breached their fiduciary duty to victims by failing to disclose its risks. (See Fire Victims Challenge PG&E Deal as Vote Looms.)

At Tuesday’s hearing, fire victim Will Abrams, a frequent self-represented litigant in the bankruptcy court, supported the TCC’s letter and said some lawyers seemed to be telling victims to vote first and ask questions later.

“They’re pitching this as ‘there’s a pot of gold and all you have to do is vote yes,’” Abrams told the judge.

Abrams was one of thousands who lost their homes in the Northern California wine country fires of October 2017 and the Camp Fire in November 2018. State fire investigators blamed most of the wine country blazes and the Camp Fire, the deadliest in state history, on failed PG&E equipment.

PG&E sought bankruptcy protection in January 2019 after the fires saddled it with an estimated $30 billion or more in liabilities to those who lost family members, homes and businesses.

Its bankruptcy is now estimated to cost close to $60 billion, making it among the largest in U.S. history.