EDWARD J. EMMONS, CLERK of □□ NO U.S. BANKRUPTCY COURT Ei □□□□ NORTHERN DISTRICT OF CALIFORNIA □□ Sal □□ 1 . □ □ □□ Signed and Filed: July 6, 2020 □□□□□ ORL 2 Mini hi 4 Vine 5 DENNIS MONTALI U.S. Bankruptcy Judge 6 7 UNITED STATES BANKRUPTCY COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 In re: ) Bankruptcy Case 10 ) No. 19-30088-DM PG&E CORPORATION, ) 11 ) Chapter 11 12 - and - ) ) Jointly Administered 13 ||/PACIFIC GAS AND ELECTRIC COMPANY, } ) 14 Debtors. 15 ) L] Affects PG&E Corporation ) 16 Affects Pacific Gas and ) 17 Electric Company Affects both Debtors ) 18 ) * All papers shall be filed in ) 19 |lthe Lead Case, No. 19-30088 (DM) .} 20 |}—NH TS TS 21 MEMORANDUM DECISION REGARDING MOTION TO APPOINT AN EXAMINER 22 On June 4, 2020, this court held a video hearing on the 23 ||*Motion for an Appointment of an Examiner of Voting Procedural 24 ||Irregularities Pursuant to Section 1104(c) of the Bankruptcy 25 ||Code and Bankruptcy Rule 2007.1” (the “Examiner Motion”) (dkt. 26 117568) filed by Karen Gowins and “Many Wildfire Victim Creditors” 27 1|(“Movants”). Movants allege that votes on the Joint Chapter 11 28 ||Plan of Reorganization (“Plan”) filed (and amended) by Debtors -1-
1 and the Shareholder Proponents were improperly or inadequately 2 solicited from wildfire victims, and an examiner should 3 investigate the voting process. For the reasons set forth 4 below, the court concludes that insufficient grounds exist to 5 grant the relief sought by the Movants. 6 I. PROCEDURAL BACKGROUND 7 On May 19, 2020, Movants filed a motion for an order 8 shortening time (“OST”) (dkt. 7427) for a hearing on the 9 Examiner Motion, which was appended as an exhibit to the motion 10 for an OST. On May 22, 2020 the court granted the OST; it held a 11 hearing on June 4, 2020. Objections were filed by Watts Guerra 12 LLP (dkts. 7436 and 7706); Singleton Law Firm Fire Victim 13 Claimants (dkt. 7724) and by Debtors (dkt. 7719). Debtors also 14 filed a declaration by Christina F. Pullo (“Pullo”), a vice 15 president of Prime Clerk LLC, the court-authorized claims and 16 noticing agent for Debtors (dkt. 7720).1 Following the June 4 17 hearing, the court took the matter under advisement. 18 A significant development occurred the day after the 19 hearing on the Examiner Motion. Counsel for the Official 20 Committee of Tort Claimants (the “TCC”) indicated at the June 5 21 hearing on confirmation that it was conducting its own 22 examination into the voting irregularities alleged by Movants.2
23 1 As discussed later, Ms. Pullo testified and was cross-examined 24 about the transmission of the Plan, the accompanying disclosure 25 statement, and the ballots to all creditors, particularly with respect to the wildfire victims. See Transcript of the 26 Confirmation Hearing held on May 27, 2020 (dkt. 7637).
27 2 At the June 5 hearing, counsel for the TCC discussed the preliminary findings reached by his firm and other professionals 28 retained by the TCC: -2- 1 The TCC offered to provide the court with its findings and did 2 so on June 5, 2020. See Preliminary Report of Official 3 Committee of Tort Claimants’ Investigation of Voting Results 4 (“TCC Preliminary Report”) filed on June 9, 2020 (dkt. 7847). 5 After completing its investigation, the TCC filed its Final 6 Report of Official Committee of Tort Claimants’ Investigation of 7 Voting Results (“TCC Final Report”) on June 19, 2020 (dkt. 8 8022). 9 II. DISCUSSION 10 Movants seek the appointment of an examiner to investigate 11 purported irregularities in the voting process. All parties 12 agree that the applicable provision governing this motion is 13 section 1104(c) of the Bankruptcy Code, which provides: 14 (c) If the court does not order the appointment of a trustee under this section, then at any time 15 before the confirmation of a plan, on request of a 16 party in interest or the United States trustee, and after notice and a hearing, the court shall order 17 the appointment of an examiner to conduct such an 18 19 I just wanted to inform you that, again, whether you appoint an examiner in [sic] subject to your 20 discretion, but I wanted you to know that when these voting complaints came up about irregularities, we 21 established a Baker review team, due diligence team, 22 to work [with] Mr. Karotkin’s firm and Prime Clerk. Mr. Karotkin’s firm and Prime Clerk turned over all 23 documents that we requested in order to investigate whether there were irregularities on a systemic 24 basis and whether that affected the vote. We’ve 25 gone through 75 percent of the data turned over by Weil, Gotshal, and Prime Clerk. And our preliminary 26 conclusion was that we didn’t see anything that we believed affected the 66 percent threshold though. 27 See Transcript of Hearing Held on June 5, 2020, at dkt. 28 7843, pp. 178-79. -3- 1 i in nv ce ls ut di ig na gt i ao nn io nf v et sh te i gd ae tb it oo nr oa fs ai ns y a ap lp lr eo gp ar ti ia ot ne s, of fraud, dishonesty, incompetence, misconduct, 2 mismanagement, or irregularity in the management of 3 the affairs of the debtor of or by current or former management of the debtor, if— 4 (1) such appointment is in the interests of 5 creditors, any equity security holders, 6 and other interests of the estate; or
7 (2) the debtor's fixed, liquidated, unsecured debts, other than debts for goods, 8 services, or taxes, or owing to an 9 insider, exceed $5,000,000. 10 See 11 U.S.C. § 1104(c) (emphasis added). 11 While Congress did not define or set forth the parameters 12 of the “as is appropriate” language, the legislative history 13 provides some guidance: 14 Subsection [(c)] permits the court, at any time after the commencement of the case and on request of 15 a party in interest, to order the appointment of an examiner, if the court has not ordered the 16 appointment of a trustee. The examiner would be 17 appointed to conduct such an investigation of the debtor as is appropriate under the particular 18 circumstances of the case, including an investigation of any allegations of fraud, 19 dishonesty, or gross mismanagement of the debtor of 20 or by current or former management of the debtor. The standards for the appointment of an examiner are 21 the same as those for the appointment of a trustee; the protection must be needed, and the cost and 22 expense must not be disproportionately high. 23 H.R. Rep. No. 95–595, 95th Cong., 1st Sess. 402 (1977) (emphasis 24 added). See also In re Residential Capital, LLC, 474 B.R. 112, 25 120–21 (Bankr. S.D.N.Y. 2012) (the appointment must be 26 “appropriate under the particular circumstances” and “the 27 protection must be needed”). Upon reviewing the TC Final 28 -4- 1 Report, the court concludes that the protection of an examiner 2 is not needed and is not appropriate under the circumstances. 3 As noted by TCC’s counsel at the confirmation hearing, “the 4 [Wildfire Victims] weren’t necessarily asking for an examiner. 5 They just wanted to know what the answer to the question [of 6 possible disenfranchisement] was.” See Transcript of Hearing 7 Held on June 5, 2020, at dkt. 7843, pp. 178-79. The independent 8 investigation by the TCC and its consultants into the alleged 9 voting irregularities provides that answer, namely that they 10 “have not identified any evidence of a voting issue in the data 11 that the consultants believe would have affected the two thirds 12 threshold required for approval by the fire victim class.” See 13 TCC Preliminary Report, dkt. 7847, ¶ 4. 14 In conducting its investigation, the TCC’s counsel and 15 consultants “made a number of assumptions about the voting data 16 – even if those assumptions were extreme – in order to stress 17 test the voting results.” See TCC Final Report at dkt. 8022, 18 pg. 2, lines 18-20.
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EDWARD J. EMMONS, CLERK of □□ NO U.S. BANKRUPTCY COURT Ei □□□□ NORTHERN DISTRICT OF CALIFORNIA □□ Sal □□ 1 . □ □ □□ Signed and Filed: July 6, 2020 □□□□□ ORL 2 Mini hi 4 Vine 5 DENNIS MONTALI U.S. Bankruptcy Judge 6 7 UNITED STATES BANKRUPTCY COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 In re: ) Bankruptcy Case 10 ) No. 19-30088-DM PG&E CORPORATION, ) 11 ) Chapter 11 12 - and - ) ) Jointly Administered 13 ||/PACIFIC GAS AND ELECTRIC COMPANY, } ) 14 Debtors. 15 ) L] Affects PG&E Corporation ) 16 Affects Pacific Gas and ) 17 Electric Company Affects both Debtors ) 18 ) * All papers shall be filed in ) 19 |lthe Lead Case, No. 19-30088 (DM) .} 20 |}—NH TS TS 21 MEMORANDUM DECISION REGARDING MOTION TO APPOINT AN EXAMINER 22 On June 4, 2020, this court held a video hearing on the 23 ||*Motion for an Appointment of an Examiner of Voting Procedural 24 ||Irregularities Pursuant to Section 1104(c) of the Bankruptcy 25 ||Code and Bankruptcy Rule 2007.1” (the “Examiner Motion”) (dkt. 26 117568) filed by Karen Gowins and “Many Wildfire Victim Creditors” 27 1|(“Movants”). Movants allege that votes on the Joint Chapter 11 28 ||Plan of Reorganization (“Plan”) filed (and amended) by Debtors -1-
1 and the Shareholder Proponents were improperly or inadequately 2 solicited from wildfire victims, and an examiner should 3 investigate the voting process. For the reasons set forth 4 below, the court concludes that insufficient grounds exist to 5 grant the relief sought by the Movants. 6 I. PROCEDURAL BACKGROUND 7 On May 19, 2020, Movants filed a motion for an order 8 shortening time (“OST”) (dkt. 7427) for a hearing on the 9 Examiner Motion, which was appended as an exhibit to the motion 10 for an OST. On May 22, 2020 the court granted the OST; it held a 11 hearing on June 4, 2020. Objections were filed by Watts Guerra 12 LLP (dkts. 7436 and 7706); Singleton Law Firm Fire Victim 13 Claimants (dkt. 7724) and by Debtors (dkt. 7719). Debtors also 14 filed a declaration by Christina F. Pullo (“Pullo”), a vice 15 president of Prime Clerk LLC, the court-authorized claims and 16 noticing agent for Debtors (dkt. 7720).1 Following the June 4 17 hearing, the court took the matter under advisement. 18 A significant development occurred the day after the 19 hearing on the Examiner Motion. Counsel for the Official 20 Committee of Tort Claimants (the “TCC”) indicated at the June 5 21 hearing on confirmation that it was conducting its own 22 examination into the voting irregularities alleged by Movants.2
23 1 As discussed later, Ms. Pullo testified and was cross-examined 24 about the transmission of the Plan, the accompanying disclosure 25 statement, and the ballots to all creditors, particularly with respect to the wildfire victims. See Transcript of the 26 Confirmation Hearing held on May 27, 2020 (dkt. 7637).
27 2 At the June 5 hearing, counsel for the TCC discussed the preliminary findings reached by his firm and other professionals 28 retained by the TCC: -2- 1 The TCC offered to provide the court with its findings and did 2 so on June 5, 2020. See Preliminary Report of Official 3 Committee of Tort Claimants’ Investigation of Voting Results 4 (“TCC Preliminary Report”) filed on June 9, 2020 (dkt. 7847). 5 After completing its investigation, the TCC filed its Final 6 Report of Official Committee of Tort Claimants’ Investigation of 7 Voting Results (“TCC Final Report”) on June 19, 2020 (dkt. 8 8022). 9 II. DISCUSSION 10 Movants seek the appointment of an examiner to investigate 11 purported irregularities in the voting process. All parties 12 agree that the applicable provision governing this motion is 13 section 1104(c) of the Bankruptcy Code, which provides: 14 (c) If the court does not order the appointment of a trustee under this section, then at any time 15 before the confirmation of a plan, on request of a 16 party in interest or the United States trustee, and after notice and a hearing, the court shall order 17 the appointment of an examiner to conduct such an 18 19 I just wanted to inform you that, again, whether you appoint an examiner in [sic] subject to your 20 discretion, but I wanted you to know that when these voting complaints came up about irregularities, we 21 established a Baker review team, due diligence team, 22 to work [with] Mr. Karotkin’s firm and Prime Clerk. Mr. Karotkin’s firm and Prime Clerk turned over all 23 documents that we requested in order to investigate whether there were irregularities on a systemic 24 basis and whether that affected the vote. We’ve 25 gone through 75 percent of the data turned over by Weil, Gotshal, and Prime Clerk. And our preliminary 26 conclusion was that we didn’t see anything that we believed affected the 66 percent threshold though. 27 See Transcript of Hearing Held on June 5, 2020, at dkt. 28 7843, pp. 178-79. -3- 1 i in nv ce ls ut di ig na gt i ao nn io nf v et sh te i gd ae tb it oo nr oa fs ai ns y a ap lp lr eo gp ar ti ia ot ne s, of fraud, dishonesty, incompetence, misconduct, 2 mismanagement, or irregularity in the management of 3 the affairs of the debtor of or by current or former management of the debtor, if— 4 (1) such appointment is in the interests of 5 creditors, any equity security holders, 6 and other interests of the estate; or
7 (2) the debtor's fixed, liquidated, unsecured debts, other than debts for goods, 8 services, or taxes, or owing to an 9 insider, exceed $5,000,000. 10 See 11 U.S.C. § 1104(c) (emphasis added). 11 While Congress did not define or set forth the parameters 12 of the “as is appropriate” language, the legislative history 13 provides some guidance: 14 Subsection [(c)] permits the court, at any time after the commencement of the case and on request of 15 a party in interest, to order the appointment of an examiner, if the court has not ordered the 16 appointment of a trustee. The examiner would be 17 appointed to conduct such an investigation of the debtor as is appropriate under the particular 18 circumstances of the case, including an investigation of any allegations of fraud, 19 dishonesty, or gross mismanagement of the debtor of 20 or by current or former management of the debtor. The standards for the appointment of an examiner are 21 the same as those for the appointment of a trustee; the protection must be needed, and the cost and 22 expense must not be disproportionately high. 23 H.R. Rep. No. 95–595, 95th Cong., 1st Sess. 402 (1977) (emphasis 24 added). See also In re Residential Capital, LLC, 474 B.R. 112, 25 120–21 (Bankr. S.D.N.Y. 2012) (the appointment must be 26 “appropriate under the particular circumstances” and “the 27 protection must be needed”). Upon reviewing the TC Final 28 -4- 1 Report, the court concludes that the protection of an examiner 2 is not needed and is not appropriate under the circumstances. 3 As noted by TCC’s counsel at the confirmation hearing, “the 4 [Wildfire Victims] weren’t necessarily asking for an examiner. 5 They just wanted to know what the answer to the question [of 6 possible disenfranchisement] was.” See Transcript of Hearing 7 Held on June 5, 2020, at dkt. 7843, pp. 178-79. The independent 8 investigation by the TCC and its consultants into the alleged 9 voting irregularities provides that answer, namely that they 10 “have not identified any evidence of a voting issue in the data 11 that the consultants believe would have affected the two thirds 12 threshold required for approval by the fire victim class.” See 13 TCC Preliminary Report, dkt. 7847, ¶ 4. 14 In conducting its investigation, the TCC’s counsel and 15 consultants “made a number of assumptions about the voting data 16 – even if those assumptions were extreme – in order to stress 17 test the voting results.” See TCC Final Report at dkt. 8022, 18 pg. 2, lines 18-20. Even after assuming that all blank votes 19 would be counted as rejections and that certain wildfire victims 20 intended to be vote differently, the TCC’s counsel and 21 consultants again concluded that the two-thirds threshold for 22 Plan approval by the wildfire victim class had been met. See 23 TCC Final Report, dkt. 8022 at pg. 2, lines 20-28. 24 In determining that the voting irregularities alleged by 25 Movants would not have changed the ultimate vote to accept the 26 Plan by the wildfire victims, the TCC made five significant 27 findings: 28 -5- 1 F fi in rd ei n vg i c1 ti: m sT ’h e v od ta et sa (v da kl ti .d a 8t 0e 2s 2 D ae tb t po gr .s ’ 5 ,t a lb iu nl ea st i 1o 0n - of 13); 2
3 Finding 2: The defective ballots, if tabulated, would not have affected the Debtors’ meeting the 4 two-thirds threshold required for acceptance of the Plan (id. at pgs. 5-8); 5
6 Finding 3: Duplication of votes, if any, would not have affected the Debtors’ meeting the two-thirds 7 threshold required for acceptance of the Plan (id. at pgs. 8-9); 8
9 Finding 4: Combining the effects of the defective and potentially duplicative ballots would not have 10 affected the Debtors’ meeting the two-thirds threshold required for acceptance of the Plan (id. 11 at pgs. 9-10); 12 Finding 5: The TCC’s counsel and consultants did not 13 observe any evidence to support the allegation that Prime Clerk or Debtors failed to comply with the 14 Solicitation Procedures Order (id. at pgs. 10-12). 15 16 Based on the TCC’s investigation results, the appointment 17 of an examiner would be unnecessarily duplicative and costly and 18 thus inappropriate under section 1104(c). Appointment of an 19 examiner would be futile as any findings would not affect the 20 ultimate determination that more than half of those casting 21 ballots holding at least two-thirds in dollar amount voted to 22 accept the Plan. Consequently, the court finds that the 23 appointment of an examiner is not necessary as such an 24 examination would duplicate the efforts of the TCC and would 25 result in “disproportionately high” costs. See H.R. Rep. No. 95– 26 595. 27 /// 28 /// -6- 1 III. CONCLUSION 2 The court regrets that a small number of the wildfire 3 victims felt disenfranchised for various reasons, including the 4 complexity of the voting materials, the relocation of so many of 5 those victims, and the misplacement or delayed receipt of many 6 ballots and other materials. In cases of this complexity, such 7 unfortunate occurrences are not uncommon. But the court is 8 encouraged by the large number of claimants who did respond and 9 whose votes were counted, both for and against confirmation of 10 the Plan. 11 For the foregoing reasons, the court is denying the 12 Examiner Motion, and entering an order to that effect 13 concurrently with the issuance of the Memorandum Decision. 14 **END OF MEMORANDUM DECISION** 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7-