Judge Rejects PG&E Bid to Pay Criminal Fine Through Fire Victims’ Trust

Homes are seen leveled by the Camp Fire in Paradise, Calif. (AP Photo/Noah Berger,File)

SAN FRANCISCO (CN) — A federal bankruptcy judge on Tuesday rejected Pacific Gas and Electric’s attempt to funnel a payment for a criminal fine related to the deadly 2018 Camp Fire through a $13.5 billion trust for wildfire victims.

After facing a backlash of criticism, PG&E last month abandoned its plan to deduct $4 million from a $13.5 billion compensation fund for fire victims to pay its criminal fine to Butte County for 84 counts of manslaughter and one count of recklessly starting a fire. On March 30, PG&E announced the fine would instead be paid by interest earned on $11 billion from an all-cash settlement to insurance claim holders. However, the utility still intended to transfer the $4 million to the fire victims’ trust and pay its criminal fine as a wildfire claim administered by the trust.

Despite that revised payment strategy, lawyers for fire victims again raised objections. In an April 7 filing, the Tort Claimants Committee, which represents fire victims, argued PG&E was intentionally trying to establish that the definition of “Fire Victim Claims” in its bankruptcy plan includes criminal fines and penalties.

PG&E countered in a written response that criminal fines and penalties are “clearly and unambiguously” fire victim claims payable from the fire victims’ trust under the terms of its bankruptcy plan and settlement with fire victims.

An order barring the company from funneling the fine through that trust could jeopardize commitments from shareholders to fund PG&E’s exit from bankruptcy, PG&E lawyer Stephen Karotkin said during a telephonic bankruptcy hearing Tuesday.

Those who pledged to fund PG&E’s bankruptcy plan could pull out if the company’s wildfire liabilities exceed $25.5 billion, the total covered by three settlements with individual fire victims, insurers and government entities, he said.

“We have an obligation to keep those equity commitments in place and avoid giving any of the backstop parties a right to terminate,” Karotkin said.

In a tentative ruling issued April 10, U.S. Bankruptcy Judge Dennis Montali said he was inclined to reject PG&E’s preferred approach to paying its criminal fine. Montali said he would avoid adopting either side’s definition of “fire claimant” and instead issue a ruling requiring the fine be paid by interest earned on the insurance claim holders’ settlement money.

“Some things not only have to be right, but they have to look right,” Montali wrote. “Telling fire victims that their money will be used to pay criminal fines and penalties does not look right even if digging through the [settlement agreement] or the [bankruptcy] plan would lead to that literal result.”

Karotkin explained at the hearing that $10.9 billion of the $11 billion settlement for insurance claims will go into an escrow account on the day PG&E’s bankruptcy plan takes effect. It will take about 15 days for $4 million in interest to accumulate on that $10.9 billion. Another $100 million will be made available immediately to insurance claim holders, he said.

Montali said he would authorize PG&E’s settlement with the Butte County District Attorney’s Office so long as the money is not funneled through the fire victims’ trust.

“I will approve the debtor’s motion with the understanding that the money to be paid to Butte County will go from the subrogation trust interest and be paid directly or through some intermediate steps if necessary but not through the fire victims’ trust,” Montali said.

Also on Tuesday, another dispute was resolved over how much PG&E should pay to set up the fire victims’ trust before its bankruptcy plan takes effect. The Tort Claimants Committee argued that PG&E should cover $21.8 million in preliminary trust expenses, far more than the $2.5 million PG&E was willing to pay.

PG&E prevailed in that dispute. The Tort Claimants Committee filed a notice on Monday indicating that PG&E will pay $2.5 million and the remaining $19.3 million will come out of the $13.5 billion trust for fire victims. If PG&E’s bankruptcy plan fails to take effect by Aug. 29, an additional $5.3 million will be paid each month and reduce the amount available to pay fire victims.

Montali on Tuesday also approved appointing two high-level officials who will oversee the $13.5 billion fire victims’ trust.

John Trotter, a retired justice of the California Fourth Appellate District, was appointed trustee. Trotter, who retired from the court in 1987, has since worked as an arbitrator for alternate dispute resolution service provider JAMS. He has served as special master in multidistrict litigation cases, including the Toyota “sudden acceleration” case, and created a program to resolve claims for the 2007 San Diego fire. Trotter will be paid $1,500 per hour, which is “his standard rate for matters such as this” and “based on his level of experience,” according to a motion seeking approval of his employment.

Cathy Yanni, an attorney who oversees a separate $105 million wildfire assistance fund approved by the bankruptcy court last year, was appointed trust administrator for the $13.5 billion fire victims’ trust. Yanni previously worked with Trotter on the 2007 San Diego fire cases and has served as an administrator, special master or mediator in thousands of cases. She will be paid $1,250 per hour, also her “standard rate” based on her experience, according to a motion seeking approval of her employment.

PG&E declared bankruptcy in January 2019 as it faced more than $30 billion in potential liabilities from 22 wildfires allegedly sparked by its equipment in 2015, 2017 and 2018. PG&E has settled all wildfire claims in three settlements totaling $25.5 billion, but the settlements are contingent on approval of its bankruptcy plan by June 30.

More than 70,000 fire victims are currently voting whether to accept or reject PG&E’s proposed plan for exiting bankruptcy. The deadline to submit ballots is May 15, and a hearing on conformation of PG&E’s bankruptcy plan is scheduled for May 27.

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