By Hudson Sangree

Attorneys are battling now over the matter at the heart of Pacific Gas and Electric’s bankruptcy — the billions of dollars it’s likely to owe victims of the massive blazes of 2017 and 2018 that wiped out a Northern California town and part of a midsized city.

In the U.S. Bankruptcy Court for the Northern District of California in San Francisco on Wednesday, lawyers representing the utility and fire victims argued over how to estimate the potential liability.

The estimation of liability is something Judge Dennis Montali must deal with as he oversees PG&E’s Chapter 11 reorganization. Estimation of potential claims is “a fairly unique process in the bankruptcy world,” Montali said in a hearing Wednesday.

The federal bankruptcy code requires judges to estimate contingent or unliquidated claims that could otherwise “unduly delay the administration of the case.”

Litigating wildfire claims in state court could cause long delays, when PG&E is under the gun to reorganize by next spring. A new state law, AB 1054, requires the company to exit bankruptcy by June 2020 if it wants to take advantage of the law’s $21 billion fund to pay wildfire damages. (See Calif. Wildfire Relief Bill Signed After Quick Passage.)

PG&E Corp. and its utility subsidiary, the debtors in the case, are pressing Montali to conduct an estimation proceeding and settle on a figure soon.

“There is no dispute by any stakeholder on the core issue presented by this motion: Estimation proceedings are required in these Chapter 11 cases absent a consensual resolution,” PG&E’s lawyers wrote in an Aug. 11 motion. “Equally inescapable is the conclusion that estimation has to begin now.”

The California Public Utilities Commission also must approve PG&E’s reorganization and needs a workable plan by January to meet the new law’s June deadline, PG&E attorneys told Montali in their brief.

“All parties acknowledge the importance of meeting that legislative deadline,” they wrote. “Failure to do so would materially reduce the value of the estate by precluding the reorganized debtors from participating in the newly created wildfire fund.”

Tort Lawyers Reject ‘Fixed Pool’

For many of the 2017-18 fires, state investigators have already determined PG&E’s equipment was at fault. As a consequence, the utility could be held responsible for all resulting damages under California’s strict liability law. That includes damages in November’s Camp Fire, which burned down most of the town of Paradise and killed 85 people. It was the deadliest and most destructive blaze in the state’s recorded history.

A major sticking point, however, is the Tubbs Fire, a blaze that tore through Northern California wine country in October 2017 and razed sections of Santa Rosa, a city with 175,000 residents in Sonoma County.

Investigators with the California Department of Forestry and Fire Protection determined a private landowners’ faulty wiring, not PG&E equipment, started the fire. (See PG&E Cleared in Fire that Burned Santa Rosa.) Plaintiffs’ lawyers still hope to convince a jury that PG&E was responsible for the blaze because of the huge amount of damages involved. The fire killed 22 residents and leveled more than 5,600 structures.

“The state court should make determinations as to debtors’ liability on the Tubbs Fire,” two law firms representing about 5,200 fire victims wrote in their brief. “Once the state court determines liability relating to the Tubbs Fire (or once the issues are settled), then the parties can get together and create estimations of all fire claims within an acceptable range.

“Estimation was not created for the purposes for which it is being used — i.e. to cap the funds available for all claimants regardless of individualized damages and with disregard to due process,” the lawyers wrote.

Other plaintiffs’ attorneys urged Montali to reject a fixed pool of money to pay fire victims.

“The debtors would like to cram down a plan that pays contract creditors in full, permits shareholders to retain their equity in the utility, channels tort claims to a trust that has a limited fund to pay tort claimants and discharges the debtors from liability on the claims,” lawyers representing the Official Committee of Tort Claimants victims wrote in a court filing.

“There can be no assurance the trust would have enough funding to pay the claimants in full when they liquidate their claims via settlements or jury trials. If the capitalization of the trust fund is insufficient to pay the tort claims in full, the result would be contract creditors and shareholders will have been paid in full and retain their interests, and the victims lose; the only question is by how much.”

The tort claimants committee has asked Montali to lift an automatic stay on lawsuits against PG&E, allowing a Tubbs Fire trial to proceed in state court on an expedited basis.

Montali said he would try to rule on the estimation issue and the lifting of the automatic stay by a hearing on Aug. 27.