Winding Creek Solar LLC v. Pacific Gas and Electric Company

• Court: District Court, N.D. California
• Decided: July 15, 2021
• Docket: 4:20-cv-02602
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 WINDING CREEK SOLAR LLC, Case No. 20-cv-02602-HSG

8 Plaintiff, ORDER AFFIRMING BANKRUPTCY COURT'S RULING ON MOTION TO 9 v. DISMISS

10 PACIFIC GAS AND ELECTRIC Re: Dkt. No. 7 COMPANY, 11 Defendant. 12 13 Pending before this Court is Appellants’1 appeal of the Bankruptcy Court’s dismissal of 14 their second cause of action for equitable relief against Appellees PG&E Corporation and Pacific 15 Gas and Electric Company (collectively, “Debtors”). See Dkt. No. 1-1; Dkt. No. 7 (“Appellants 16 Brief”); Dkt. No. 12 (“Reply Brief”). Specifically, Appellants appeal from the Bankruptcy 17 Court’s Order Resolving the Utility’s Motion to Dismiss entered on March 30, 2020, Dkt. No. 1-1 18 ECF 4-6 (“Order”), and the related docket order entered on March 22, 2020, Dkt. No. 1-1 ECF 7 19 (“Text Order”). Debtors oppose the appeal. Dkt. No. 9 (“PG&E Brief”). For the following 20 reasons, the Court AFFIRMS the Bankruptcy Court’s dismissal of Appellants’ second cause of 21 action for equitable relief. 22 I. BACKGROUND 23 A. PG&E’s Bankruptcy and Chapter 11 Plan 24 On January 29, 2019, the Debtors commenced voluntary cases for relief under chapter 11 25 of title 11 of the United States Code (“Bankruptcy Code”) in the United States Bankruptcy Court 26 for the Northern District of California (“Bankruptcy Court”). Significantly, the Debtors needed to 27 1 propose a plan of reorganization that satisfied the requirements of A.B. 1054, including its June 2 30, 2020 deadline for plan confirmation. In light of the “increased risk of catastrophic wildfires,” 3 A.B. 1054 created the “Go-Forward Wildfire Fund” as a multi-billion dollar safety net to 4 compensate future victims of public utility fires and thereby “reduce the costs to ratepayers in 5 addressing utility-caused catastrophic wildfires,” support “the credit worthiness of electrical 6 corporations,” like the Debtors, and provide “a mechanism to attract capital for investment in safe, 7 clean, and reliable power for California at a reasonable cost to ratepayers.” A.B. 1054 § 1(a). For 8 the Debtors to qualify for the Go-Forward Wildfire Fund, however, A.B. 1054 required, among 9 other things, the Debtors to obtain an order from the Bankruptcy Court confirming a plan of 10 reorganization by June 30, 2020. See A.B. 1054 § 16, ch. 3, 3292(b). After more than sixteen 11 months of negotiations among a variety of stakeholders, and following confirmation hearings that 12 spanned several weeks, the Debtors’ Plan of Reorganization dated June 19, 2020 (“Plan”)2 was 13 confirmed by the Bankruptcy Court on June 20, 2020 and became effective on July 1, 2020 14 (“Effective Date”). 15 B. Bankruptcy Court Proceedings 16 On October 20, 2019, Appellants filed an adversarial complaint in the Bankruptcy Court 17 asserting two causes of action against Debtors: a claim for damages and a claim for injunctive 18 relief. Appellants Br. at 19. Appellants and Debtors eventually stipulated before the Bankruptcy 19 Court that the determination of the merits of Appellants’ damages claim as asserted in their first 20 cause of action would be made exclusively in the context of the Chapter 11 claims administration 21 process. Dkt. No. 1-1 at ECF 5. Accordingly, Appellants’ appeal is limited to the Bankruptcy 22 Court’s dismissal of their claim for injunctive relief. Appellants Br. at 4. 23 In their claim for injunctive relief, Appellants sought an order from the Bankruptcy Court 24 requiring Debtors to enter into contracts for the purchase of energy and capacity from Appellants’ 25 facilities. Id. at 19-20. After considering Debtors’ motion to dismiss and Appellants’ opposition, 26 the Bankruptcy Court issued a tentative ruling granting the motion to dismiss without leave to 27 1 amend:

2 Even assuming that the second cause of action is procedurally permissible, and Without dealing with or deciding whether plaintiffs 3 may maintain a private cause of action or whether the Primary Jurisdiction Doctrine controls, there is no getting around that this 4 court is neither a proxy for FERC and/or the CPUC or that it can take the place of a state court. The argument set forth by Plaintiffs at 8:14 5 - 10:13 properly explains why the state courts have a role to play; their unsupported statement at 1:15-21 that the automatic stay prevents 6 them filing suit in state court and this court is proper is more than unpersuasive. It is incorrect. 7 8 The parties then stipulated to accept the tentative ruling without Appellants waiving 9 their appeal rights as to the second cause of action for injunctive relief, and the 10 Bankruptcy Court entered a final order with respect to the second cause of action. 11 Dkt. No. 1-1 at ECF 5-6. This appeal followed. 12 II. LEGAL STANDARD 13 District courts have jurisdiction to hear appeals from final judgments, orders, and decrees 14 of bankruptcy judges. 28 U.S.C. § 158. A district court reviews a bankruptcy court’s decision by 15 applying the same standard of review used by circuit courts when reviewing district court 16 decisions. In re Greene, 583 F.3d 614, 618 (9th Cir. 2009). The district court reviews 17 the bankruptcy court’s findings of fact for clear error and its conclusions of law de novo. In re 18 Harmon, 250 F.3d 1240, 1245 (9th Cir. 2001). 19 A bankruptcy court’s decision to decline to exercise jurisdiction over an adversary 20 proceeding is reviewed for abuse of discretion. See In re Zegzula, No. AP 14-04005-BDL, 2015 21 WL 5786572, at *2 (B.A.P. 9th Cir. Oct. 2, 2015) (citing In re Carraher, 971 F.2d 327, 328 (9th 22 Cir. 1992). In applying the abuse of discretion test, the Court must first “determine de novo 23 whether the [bankruptcy] court identified the correct legal rule to apply to the relief requested.” 24 United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009). If the bankruptcy court identified 25 the correct legal rule, the Court then determines whether its “application of the correct legal 26 standard [to the facts] was (1) illogical, (2) implausible, or (3) without support in inferences that 27 may be drawn from the facts in the record.” In re Taylor, 599 F.3d 880, 887–88 (9th Cir. 2010) 1 application of the correct legal standard to the facts was illogical, implausible, or without support 2 in inferences that may be drawn from the facts in the record, then the bankruptcy court has abused 3 its discretion.” Id. 4 III. DISCUSSION 5 This appeal presents the question whether the Bankruptcy Court abused its discretion in 6 declining to exercise jurisdiction over Appellants’ claim for injunctive relief. 7 Appellants have a long history of litigating the underlying substantive issues that they now 8 argue should be adjudicated by the Bankruptcy Court as an equitable claim. In Winding Creek 9 Solar LLC v. Peevey, Appellant Winding Creek Solar LLC successfully challenged a series of 10 orders by the California Public Utilities Commission (“CPUC”) related to a procurement program 11 regulated under the federal Public Utility Regulatory Policies Act (“PURPA”). Winding Creek 12 Solar LLC v. Peevey, 293 F. Supp. 3d 980, 981 (N.D. Cal. 2017), aff'd sub nom. Winding Creek 13 Solar LLC v. Peterman, 932 F.3d 861 (9th Cir. 2019). While Winding Creek prevailed on 14 summary judgment, the district court rejected Winding Creek’s request that the court order PG&E 15 to enter into a contract with it. Id. at 993-994. The district court found that “the request for a 16 specific contract at a specific price is an as-applied challenge that does not belong in this forum.” 17 Id. 18 The Ninth Circuit affirmed and held that “the district court did not abuse its broad 19 discretion to fashion equitable relief by declining to grant Winding Creek a contract with PG&E at 20 the initial $89.23/MWh price.” Winding Creek Solar LLC v. Peterman, 932 F.3d 861, 866 (9th 21 Cir. 2019). The Ninth Circuit went on to explain that “it would be inappropriate to order a non- 22 party to contract with Winding Creek under a modified version of the very program the court had 23 just determined to be preempted by federal regulation.” Id. In concluding that “[i]t is not the 24 court’s job to fashion a new contract to Winding Creek’s liking,” the Ninth Circuit cited to the 25 First Circuit’s decision in a similar PURPA case, characterizing the First Circuit’s decision as 26 “noting that federal courts are neither statutorily authorized nor competent to set avoided-cost 27 rates.” Id. In Allco Renewable Energy Ltd. v. Massachusetts Elec. Co., Appellant Allco 1 rates. 875 F.3d 64, 74 (1st Cir. 2017). The First Circuit affirmed and held that the district court 2 was correct in “declining to engage in fact-finding to determine the proper avoided cost rate,” and 3 in observing that “[n]othing in the statutory scheme provides this Court with rate-making 4 authority, and it lacks the expertise to do so.” Id. (quotation marks omitted). 5 Notwithstanding this precedent, Appellants continue to argue that they are entitled to 6 court-mandated contracts with Debtors at certain specific rates, i.e. the same equitable relief that 7 was requested and denied in their prior litigation. Compare Appellants Br. at 19 (“In the case of 8 the Winding Creek Facility, for example, this would require the Bankruptcy Court to order PG&E 9 to enter into a 20-year contract at an avoided cost rate of $89.23 per MWh….”) with Winding 10 Creek Solar, 932 F.3d at 866 (“[T]he district court did not abuse its broad discretion to fashion 11 equitable relief by declining to grant Winding Creek a contract with PG&E at the initial 12 $89.23/MWh price.”). Appellants further argue that the Bankruptcy Court is now the appropriate 13 venue to seek their desired injunctive relief. Appellants Br. At 20. 14 Appellants present several arguments for why the Bankruptcy Court erred in dismissing its 15 claim for injunctive relief. First, they argue that the Bankruptcy Court erroneously concluded that 16 “it lacked jurisdiction” to decide Appellants’ claims. Id. at 6. But the Bankruptcy Court did not 17 find that it lacked jurisdiction. Rather, the Bankruptcy Court found that it was “neither a proxy for 18 FERC and/or the CPUC [n]or . . . can take the place of a state court.” Text Order. The 19 Bankruptcy Court agreed with Appellants’ position that California state courts have a role to play 20 in adjudicating Appellants’ claim but explicitly rejected Appellants’ “unsupported statement” that 21 the bankruptcy stay “prevents them filing suit in state court.” Id. On that basis, the Bankruptcy 22 Court found that it was not the proper venue for Appellants’ claim. Id. (“The argument set forth 23 by Plaintiffs . . . properly explains why the state courts have a role to play; their unsupported 24 statement . . . that the automatic stay prevents them filing suit in state court and this court is proper 25 is more than unpersuasive. It is incorrect.”). 26 Similarly, Appellants argue that the Bankruptcy Court erroneously concluded that “FERC 27 or the CPUC have primary jurisdiction.” Appellants Br. at 6. But again, Appellants 1 it did not reach the question of primary jurisdiction. Text Order (“Without dealing with or 2 deciding whether plaintiffs may maintain a private cause of action or whether the Primary 3 Jurisdiction Doctrine controls . . . .”). 4 Insofar as Appellants engage with the Bankruptcy Court’s actual ruling, they seem to be 5 arguing that (1) Appellants’ claims constitute core proceedings, Appellants Br. at 24-25; (2) even 6 if the claim for injunctive relief is a non-core proceeding, the Bankruptcy Court may exercise 7 jurisdiction, id. at 25-27; and (3) not only is the Bankruptcy Court permitted to exercise 8 jurisdiction, but it is the appropriate venue and declining jurisdiction constituted an abuse of 9 discretion, Reply at 19-21. 10 In contending that their injunctive relief claim is a core proceeding under the Bankruptcy 11 Code, Appellants cite to 28 U.S.C. § 157(b), but they offer no argument or authority explaining 12 how their claim for injunctive relief falls into § 157(b)’s categories. Appellants Br. at 24-25. The 13 single case cited by Appellants sets out the Ninth Circuit’s explanation that “[i]n general, a ‘core 14 proceeding’ in bankruptcy is one that ‘invokes a substantive right provided by title 11 or . . . a 15 proceeding that, by its nature, could arise only in the context of a bankruptcy case.’” In re Gruntz, 16 202 F.3d 1074, 1081 (9th Cir. 2000) (citation omitted). “’Non-core proceedings’ are those not 17 integral to the restructuring of debtor-creditor relations and not involving a cause of action arising 18 under title 11.” Id. Appellants do not attempt to explain how their claim for injunctive relief 19 invokes a substantive right provided by title 11 or is a claim that could arise only in the context of 20 a bankruptcy case. Such an argument would fail in any event, as the substance of Appellants’ 21 claim and their prior litigation history make clear. Accordingly, the Court finds that Appellants’ 22 claim for injunctive relief does not constitute a core proceeding under 28 U.S.C. § 157(b). 23 Appellants next argue that the Bankruptcy Court may hear and determine non-core 24 proceedings that are otherwise related to Debtors’ bankruptcy case. Appellants Br. at 25. They 25 also cite to 28 U.S.C. § 1334(b), which provides that “the district courts shall have original but not 26 exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases 27 under title 11.” 28 U.S.C. § 1334(b); Appellants Br. at 25. 1 “hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 2 11.” 28 U.S.C. § 157(c)(1). But the Court disagrees with Appellants that the Bankruptcy Court 3 abused its discretion in declining to exercise jurisdiction. 28 U.S.C. § 1334(c)(1) allows for the 4 Bankruptcy Court to “abstain[] from hearing a particular proceeding arising under title 11 or 5 arising in or related to a case under title 11” when it is “in the interest of justice, or in the interest 6 of comity with State courts or respect for State law.” 7 Appellants acknowledge that “California’s state courts may hear and determine 8 Appellants’ request for equitable relief.” Appellants Br. at 26. But they assert that because there 9 is no previously commenced state action, abstention under § 1334(c)(1) is inapplicable. Id. at 24. 10 Again, they cite no authority for this proposition. Rather, they assert without support that the 11 Bankruptcy Court is better positioned than California state courts to adjudicate their request for 12 injunctive relief because the Bankruptcy Court is also considering Appellants’ bankruptcy proofs 13 of claim. Id. at 26. 14 Under Ninth Circuit precedent, a previously commenced state court proceeding is only one 15 of the factors that courts consider in deciding on § 1334(c)(1) abstention. Those factors are:

16 (1) the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention, (2) the extent to which state 17 law issues predominate over bankruptcy issues, (3) the difficulty or unsettled nature of the applicable law, (4) the presence of a related 18 proceeding commenced in state court or other nonbankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334, (6) the 19 degree of relatedness or remoteness of the proceeding to the main bankruptcy case, (7) the substance rather than form of an asserted 20 ‘core’ proceeding, (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state 21 court with enforcement left to the bankruptcy court, (9) the burden of [the bankruptcy court's] docket, (10) the likelihood that the 22 commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties, (11) the existence of a right to a jury 23 trial, and (12) the presence in the proceeding of nondebtor parties.

24 In re Eastport Assocs., 935 F.2d 1071, 1075-76 (9th Cir. 1991). 25 While the Bankruptcy Court did not go into extensive detail in its Text Order, it did make 26 clear its conclusion that California state court is a more appropriate venue for Appellants’ claim 27 for injunctive relief. Text Order (“The argument set forth by Plaintiffs at 8:14 - 10:13 properly 1 automatic stay prevents them filing suit in state court and this court is proper is more than 2 unpersuasive. It is incorrect.”). 3 In this same dispute, the district court has already found that Appellants’ request for 4 injunctive relief “does not belong in this forum.” Winding Creek Solar, 293 F.Supp.3d at 994; see 5 also Solutions for Utilities, Inc. v. Cal. Pub. Util. Comm'n, No. CV 11–04975 SJO (JCGx), 2016 6 WL 7613906, at *15 (C.D. Cal. Dec. 28, 2016) (“[A]n as-applied claim challenges the application 7 of a state agency’s rules to an individual petitioner and is reserved to the state courts.”). The Ninth 8 Circuit has affirmed that decision. Winding Creek Solar, 932 F.3d at 866 (“It is not the court’s job 9 to fashion a new contract to Winding Creek’s liking.”). 10 Even if the Bankruptcy Court could have chosen to step into the place of a California state 11 court, Appellants cite no authority, and the Court has found none, that obliged it to do so.3 On the 12 contrary, both the district court and the Ninth Circuit have found that Appellants’ claim for 13 injunctive relief is properly resolved outside of the federal courts. The Court finds no basis to 14 conclude that the initiation of bankruptcy proceedings gave the Bankruptcy Court a special 15 competency to decide Appellants’ injunctive relief claim that the district court previously lacked. 16 Further, the substance of Appellants’ injunctive relief claim relates to state and federal energy 17 regulation and has nothing to do with bankruptcy law. Given § 1334(c)(1)’s authorization to 18 abstain from a proceeding “in the interest of comity with State courts or respect for State law,” the 19 Court finds that it was not an abuse of discretion for the Bankruptcy Court to decline jurisdiction 20 over Appellants’ claim for injunctive relief. 21 3 Implicit in Appellants’ position seems to be the premise that the automatic stay under 11 U.S.C. 22 § 362 makes the Bankruptcy Court a more appropriate venue than California state court. See Appellants Br. at 24. But 11 U.S.C. § 362(d) “gives the bankruptcy court wide latitude in crafting 23 relief from the automatic stay.” In re Nat’l Env't Waste Corp., 129 F.3d 1052, 1054 (9th Cir. 1997). The Ninth Circuit has recognized that allowing a state action to proceed in a state tribunal 24 can be proper cause to grant relief from the automatic stay. See Piombo Corp. v. Castlerock Props. (In re Castlerock Props.), 781 F.2d 159, 163 (9th Cir.1986). This case would seem to be 25 an ideal candidate for lifting the automatic stay, given the Ninth Circuit’s determination that federal courts are not the appropriate place to seek Appellants’ desired relief and the Bankruptcy 26 Court’s finding that state courts “have a role to play.” There is no indication in the record before this Court why Appellants decided to pursue their injunctive relief claim as an adversary 27 proceeding in Bankruptcy Court rather than seek a lift of the automatic stay to pursue their claim 1 IV. CONCLUSION 2 The Bankruptcy Court’s order dismissing Appellant’s second cause of action for injunctive 3 || reliefis AFFIRMED. The Clerk is directed to terminate this appeal and close the case. 4 IT IS SO ORDERED. 5 || Dated: July 15, 2021 Abie 5 Sb |p. 7 HAYWOOD S. GILLIAM, JR. United States District Judge 8 9 10 1] 12

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