Possible PG&E bankruptcy would halt liability suits for North Bay fire victims
Thousands of Sonoma County families would see their claims against PG&E delayed - and possibly reduced - if the San Francisco utility carries through with its plan announced Monday to file for bankruptcy protection as a result of $30 billion in liability for wildfire damages in recent years.
The move to file for Chapter 11 reorganization would throw out a carefully crafted compromise that passed the state Legislature last summer allowing PG&E to float state-sponsored bonds to pay for claims from the 2017 North Bay fires, which destroyed more than 6,000 homes and caused $10 billion in insurance claims.
Instead, a federal bankruptcy judge in San Francisco would decide how to reorganize PG&E if the company follows through on its decision to file for bankruptcy on Jan. 29. That judge would determine who gets paid - and who doesn’t - among its creditors.
“It complicates things quite a bit,” said Santa Rosa attorney Roy Miller, who is part of a legal team representing 1,200 North Bay fire victims.
The bankruptcy filing would immediately halt all action on liability lawsuits accusing PG&E of causing the 2017 Northern California fires.
Cal Fire investigators have found evidence that PG&E equipment sparked 17 of 21 major wildfires that killed 44 people and destroyed 8,900 structures in 2017.
In a filing with the U.S. Securities and Exchange Commission, the utility said it knew of 700 complaints on behalf of at least 3,600 plaintiffs as a result of the blazes.
Steve Malnight, senior vice president at PG&E, said bankruptcy is the “only viable option” for the utility.
The decision was made to “support the orderly, fair and expeditious resolution” of the wildfire claims, he said.
The PG&E bankruptcy case would likely take one year to 18 months to resolve, said Bill Brandt, a national bankruptcy expert who founded Development Specialists Inc., a Chicago firm that specializes in corporate restructuring. Other victim advocates said it could take much longer given the complexity of the case, perhaps several years.
“There are a lot of people who don’t have four or five years,” said Patrick McCallum, head of Up from the Ashes, a coalition of fire victims that lobbied for last year’s law providing PG&E with a path to pay for its anticipated 2017 wildfire claims.
Under federal law, secured creditors would go to the front of the line during bankruptcy proceedings. Those would be banks and other asset-backed lenders.
Fire victims would be part of a massive group of unsecured creditors, whose claims are not guaranteed by PG&E assets.
This group of creditors would include local governments and insurance carriers seeking compensation for their losses during the 2017 fires, as well as vendors and other contractors that did work for the utility.
“Everyone is competing for the same assets,” Brandt said.
He was bearish on the amount that fire victims may recover through such a process, saying “it may be pennies on the dollar, or maybe nickels on the dollar.”
Others said the compensation for fire victims could be more significant.
“It’s not the end of the story,” said Santa Rosa attorney Noreen Evans, a former state lawmaker who is part of a legal team that is representing about 2,000 fire victims.
“Chapter 11 is reorganizing debt. It’s not necessarily discharging debt.”
She noted that a bankruptcy judge could take into account the 2018 state law and craft a similar solution that would compensate fire victims.
Plaintiffs’ lawyers also disputed that PG&E is in dire financial straits and accused the company of running to bankruptcy court as an escape, rather than significantly reorganizing itself and finding a way to work with claimants. They would make similar arguments as part of a creditors committee in bankruptcy court, if need be.
“This is a manufactured crisis,” said attorney Frank Pitre, who represents about 600 fire victims. He told his clients, “don’t panic.”
Pitre said if the case goes through bankruptcy court, he would challenge the $30 billion in liabilities that PG&E claims it has on its balance sheet, noting that the company has never admitted liability in any of the recent wildfire cases.
“It’s fictitious,” he said of the $30 billion figure.
PG&E could make structural changes, Pitre said, which could significantly boost its current market valuation of $4.7 billion and attract investors back to its stock.
He said the utility should work with fire victims, cities and insurance carriers to see if they would take a reduced claim amount or payments structured over a longer time frame.
“They have short-term problems,” he said. “They have a viable path going forward.”
Business, Beer and Wine, The Press Democrat
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