Critics Seek Partial Redo of Voting on PG&E Bankruptcy Plan

This row of chimneys photographed on Oct. 13, 2017, stand in a neighborhood devastated by the Tubbs fire near Santa Rosa, Calif. (AP Photo/Jae C. Hong, File)

SAN FRANCISCO (CN) — Wildfire victims who oppose Pacific Gas and Electric’s plan for exiting bankruptcy asked a federal judge Tuesday to invalidate the votes of thousands of fire claimants based on a Texas attorney’s alleged conflict of interest.

Mikal Watts, a Corpus Christi, Texas-based lawyer who represents 16,000 wildfire survivors, has come under scrutiny recently for failing to fully disclose his financial relationship with two major PG&E equity holders.

After Watts’ firm, Watts Guerra, obtained a $100 million loan in September, PG&E equity holders Centerbridge Partners and Apolo Global Management purchased portions of that loan from the bank.

Last month, Tubbs Fire survivor William Abrams moved for the bankruptcy court to designate thousands of fire victims’ votes on PG&E’s bankruptcy plan as improperly solicited.

During a hearing Tuesday, Abrams argued that Watts played a key role in negotiating a $13.5 billion settlement with fire victims that is partly contingent on PG&E’s stock price. The two equity holders bankrolling Watts’ firm stand to gain from a quick approval of PG&E’s bankruptcy plan. Meanwhile, fire victims will take on immense risk because half of the $13.5 billion trust depends on PG&E’s stock price, which is threatened by pandemic-related market volatility and potential future wildfire liabilities.

“It’s troubling,” Abrams said. “It should be troubling to everyone in this case.”

Steven Kane, an attorney representing wildfire victim Karen Gowins, joined Abrams in asking the court to take action regarding Watts’ alleged conflict. Kane argued in a legal brief last month that Watts’ failure to disclose his financial relationship with PG&E equity holders violates the Rules of Professional Conduct for attorneys in California.

On Tuesday, Watts argued the financial relationships do not rise to the level of a conflict of interest that requires disclosure. He said Centerbridge and Apolo are not the biggest PG&E shareholders. Centerbridge is the 17th largest PG&E shareholder, owning 1.46% of the stock, and Apolo owns less than that, according to Watts.

Though he maintains there is no conflict, Watts nevertheless disclosed the relationship to a few hundred clients at a Dec. 8 meeting in Santa Rosa. After Abrams raised the issue of a potential conflict, Watts further disclosed the financial relationship in oral and written communications to clients in late April and early May.

“I don’t believe there’s a record of bad faith that would give rise to a remedy,” Watts said during the hearing Tuesday.

The Texas attorney also accused Abrams and other opponents of PG&E’s bankruptcy plan of trying to use the media to play up the issue “to slow down the votes.”

On April 28, Watts Guerra and other law firms reported that over 98.7% of 20,229 fire claimants had voted to approve PG&E’s bankruptcy plan, despite concerns about the effect of the Covid-19 pandemic and potential future wildfires on PG&E’s stock price, which will determine how much money goes to fire victims.

San Diego-based lawyer Gerald Singleton, whose firm represents 7,000 fire victims, also defended Watts on Tuesday, arguing that no conflict exists because the financing came from a fixed-rate loan and the equity holders have no power to influence the law firm’s decision making.

“There is no conflict, but Mr. Watts went above and beyond and said to his clients, ‘Here’s what happened,’” Singleton said. “I don’t think he was under any legal obligation to do it, but doing that is best practice, and I commend him for doing that.”

Kane asked U.S. Bankruptcy Judge Dennis Montali to make Watts disclose the alleged conflict to all of his clients and obtain a waiver from each one stating they are still OK with his firm representing them.

“I want to ask the court to help us do something about this problem to protect the integrity of the system,” Kane said.

Abrams also asked that the court to seek an extension of the state-mandated June 30 deadline for PG&E to exit bankruptcy. Exiting by the deadline will allow PG&E to access an insurance fund for future wildfire liabilities.

“I would ask the court, and I would think parties would welcome making sure there is full transparency, full disclosure so victims could trust in a just process,” Abrams said.

After about an hour of debate, Montali took the arguments under submission.

Some 70,000 fire victims started voting on PG&E’s bankruptcy plan on April 1. The voting period ends May 15. A hearing on confirmation of PG&E’s Chapter 11 bankruptcy restructuring plan is scheduled for May 27.

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