ML020780415
| ML020780415 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 03/05/2002 |
| From: | Lopes J Howard, Rice, Nemerovski, Canady, Falk & Rabkin |
| To: | Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California |
| References | |
| 01 30923 DM | |
| Download: ML020780415 (11) | |
Text
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9 10 11 12 Hc7/AP 13 RICE 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In re PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Debtor.
Federal I.D. No. 94-0742640 Case No. 01 30923 DM Chapter 11 Case Date:
Time:
Place:
March 25, 2002 9:30 a.m.
235 Pine Street, 22nd Floor San Francisco, California NOTICE OF MOTION AND MOTION OF PACIFIC GAS AND ELECTRIC COMPANY FOR ORDER AUTHORIZING DEBTOR TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF
[SUPPORTING DECLARATION OF KEVIN J. DOWD FILED CONCURRENTLY HEREWITH]
MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS "k/,.
bfVY JAMES L. LOPES (No. 63678)
JANET A. NEXON (No. 104747)
CEIDE ZAPPARONI (No. 200708)
HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 Telephone:
415/434-1600 Facsimile:
415/217-5910 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION
1 NOTICE OF MOTION AND MOTION 2
PLEASE TAKE NOTICE that on March 25, 2002, at 9:30 a.m., or as soon 3
thereafter as the matter may be heard, in the Courtroom of the Honorable Dennis Montali, 4
located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas and Electric 5
Company, the debtor and debtor in possession in the above-captioned Chapter 11 case 6
("PG&E" or the "Debtor"), will and hereby does move the Court for entry of an order 7
authorizing the Debtor to pay certain categories of pre-petition Claims, specifically: (1) 8 allowed claims of $5,000 or less; (2) valid mechanics' lien claims; and (3) valid reclamation 9
claims (the "Motion").
10 The Motion is based on this Notice of Motion and Motion, the accompanying 11 Memorandum of Points and Authorities in support thereof, the Declaration of Kevin J.
12 Dowd filed concurrently herewith, the record of this case and any evidence presented at or HCM~R 13 prior to the hearing on this Motion.
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AjX'14 PLEASE TAKE FURTHER NOTICE that pursuant to Rule 9014-1(c)(2) of the
&RAHON 15 Bankruptcy Local Rules for the United States District Court for the Northern District of 16 California, any written opposition to the Motion and the relief requested therein must be 17 filed with the Bankruptcy Court and served upon appropriate parties (including counsel for 18 PG&E, the Office of the United States Trustee and the Official Committee of Unsecured 19 Creditors) at least five (5) days prior to the scheduled hearing date. If there is no timely 20 opposition to the requested relief, the Court may enter an order granting such relief without 21 further hearing.
22 23 MEMORANDUM OF POINTS AND AUTHORITIES 24 I.
25 INTRODUCTION 26 Over 13,000 proofs of claim have been filed in this case. In order to facilitate the 27 efficient administration of the estate, PG&E, by this Motion, seeks the Court's authorization 28 to pay certain categories of pre-petition claims in advance of plan confirmation and MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS 1
consummation. The claims that PG&E seeks to pay either are small in dollar amount (i.e.,
2 claims of (or reduced to) $5,000 or less), or are particular types of administrative or secured 3
claims (i.e., reclamation claims and mechanics' lien claims).
4 Of all claims filed in this case, approximately one-third seek amounts of $5,000 5
or less. The aggregate amount of these claims is approximately $6.7 million, or 6
approximately 0.02% in dollar amount, of all claims filed against PG&E's estate.' By 7
paying, at this time, certain valid claims that would inevitably be paid with cash that PG&E 8
(as a solvent debtor) currently has on hand, PG&E seeks to streamline the claims resolution 9
process and reduce the estate's post-petition interest expense. Permission to pay these 10 smaller claims and the mechanics' lien and reclamation claims would enable PG&E to 11 discharge a large administrative burden now and free up resources to deal with larger, more 12 complex claims and other reorganization issues.
HOWRD 13 Further, PG&E is filing, concurrently herewith, a motion seeking an order for, RICE
""C" 14 among other things, authority to pay pre-and post-petition interest to holders of certain
&RU<N AP*,WC, 15 undisputed claims (hereafter, the "Interest Payment Motion").2 To the extent that the Court 16 grants the Interest Payment Motion, the early payment of this large proportion of the claims 17 against the estate will obviate the need to issue small checks for periodic interest payments 18 to thousands of claimants.
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'PG&E has designated $5,000 as the threshold for claims to be paid on the basis. that, at 23 this dollar amount, the largest number of claims are resolved for the least total dollar cost to the estate. If the dollar threshold is raised to a higher amount, payment of the claims would 24 result in diminishing returns to the estate-i.e., the number of claims resolved would not increase proportionately in relation to the cost.
25 2The "Notice of Motion and Motion by Pacific Gas and Electric Company for Order (A) Approving Settlement and Support Agreement by and among Plan Proponents and 26 Senior Debtholders, (B) Authorizing Payment of Pre-and Post-Petition Interest to Holders Undisputed Claims in Certain Classes, (C) Authorizing Payment of Fees and Expenses of 27 Indenture Trustees and Paying Agents and (D) Authorizing Debtor to Enter Into Similar 28 Settlements" is set for hearing at the same date and time as this Motion.
MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS II
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&RAMIN Ahd 15 16 17 18 19 20 21 22 23 24 25 26 27 28 II.
FACTUAL BACKGROUNDD3 As explained in greater detail below, by this Motion, PG&E seeks permission to pay three categories of claims prior to confirmation of its Plan: (1) valid claims for amounts of $5,000 or less; (2) valid mechanics' lien claims; and (3) valid reclamation claims.
A.
Valid Claims For Amounts Equal To Or Less Than $5,000.4 Almost a third of all claims filed in this case seek amounts equal to or less than
$5,000 (the "Small Claims").5 PG&E estimates that 4,124 of the total filed claims are in this category. 6 Many of the claimants who filed Small Claims are individuals or small businesses. Typical of the claimants in this category are trade creditors with claims for goods or services provided to PG&E, and customers seeking reimbursement for damages suffered to personal property (such as appliances) due to, for example, power outages or surges.
While the Small Claims represent a relatively large number of filed claims, such claims represent a very small percentage of the total dollar amount of claims filed in the case. The Small Claims aggregate approximately $6.7 million, or about 0.02% of the total 3The evidentiary basis and support for the facts set forth in this Motion are contained in the Declaration of Kevin J. Dowd filed concurrently herewith.
4The proposed treatment would apply to claims greater than $5,000 that are reduced voluntarily by the claimant to $5,000.
5 This Motion generally refers to claims that have been filed against the Debtor pursuant to proofs of claim. However, PG&E believes that the filed claims significantly overstate PG&E's liability. In fact, PG&E's analysis shows that, of the Small Claims filed against the estate, more than 10% are duplicate or late-filed claims. PG&E believes that its Amended Schedules filed herein present a far more accurate picture of PG&E's liability for pre-petition claims. Scheduled claims in amounts of $5,000 or less represent 70% of all scheduled claims.
6All calculations referred to in this Motion are approximate; they represent PG&E's current analysis, which will be refined as PG&E's reconciliation of the large number of claims filed herein continues.
MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS I
dollar amount of the remaining claims filed in this case. 7 The proposed payment in full of 2
such claims would involve a sum that is not large in the context of this case, particularly in 3
light of the large number of claims that this amount would satisfy.
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B.
Claims Arising Out Of Mechanics' Liens.
6 There are approximately 50 claims asserting mechanics' liens filed against the 7
estate, totaling approximately $10.2 million. These claims represent a relatively small 8
percentage of the total claims against the estate. Such secured claims would inevitably be 9
entitled to full payment, or its economic equivalent, in this solvent debtor case. PG&E 10 submits that payment of these claims now will reduce the estate's post-petition interest 11 expense and ease the administrative burden of resolving these claims. 8 12 HOWAD 13 C.
Reclamation Claims.
14 Certain sellers of goods have filed reclamation claims seeking the return of goods 15 delivered to PG&E immediately prior to or shortly after the filing of its Chapter 11 petition.
16 Approximately 50 such claims have been filed against the estate, aggregating approximately 17
$5.5 million.9 This category of claims represents less than 0.02% of the total dollar amount 18 of the remaining claims filed against the estate.
19 The Bankruptcy Code honors statutory or common law rights of a seller of goods 20 to reclaim goods sold to the debtor in the ordinary course of the seller's business, if the seller 21 satisfies certain requirements set forth in Bankruptcy Code Section 546(c). 10 Valid 22 23 7The Court has previously disallowed the claims of Baldwin & Associates and Wayne Roberts, in the aggregate amount of $9 billion.
24 8While PG&E's examination of these claims is not yet complete, it expects that the amount that will be required to satisfy these claims will be no more than $10.2 million.
25 9One claim for approximately $1 million has been withdrawn.
26 10Such requirements include the debtor's insolvency at the time of receipt of the goods.
Although PG&E maintains that it was solvent at the' time of receipt of the goods subject to 27 reclamation claims and remains solvent, it seeks to avoid the potentially time-consuming and 28 expensive litigation regarding its solvency that would be required in contesting these claims.
MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS 1
reclamation claims may be granted administrative expense priority under Section 503(b) of 2
the Bankruptcy Code as a replacement for the unpaid seller's right of reclamation, or may be 3
treated as secured claims. 11 U.S.C. §546(c)(2)(A); see also 5 Lawrence P. King, Collier on 4
Bankruptcy ¶546.03[2][a], at 546-21 (15th ed. rev. 2001); id. ¶503.05[4], at 503-22.
5 PG&E believes that these three categories of claims eventually will be fully paid 6
with interest. PG&E is solvent and has the cash required to pay these claims now."
7 Accordingly, there is no benefit to the estate or to creditors in requiring these claimants to 8
await payment until consummation of a Chapter 11 plan in this case. Moreover, PG&E's 9
proposed approach creates no disadvantage to any other creditor or class of creditors. In 10 fact, PG&E's proposal would yield benefits to the estate in that a significant amount of 11 administrative work would be done at an earlier stage in the claims resolution process, 12 leaving PG&E resources available to deal with much larger, more complex claims and the HCARD 13 other demands of reorganization. A further benefit is that paying these claims pre W
14 confirmation reduces PG&E's ongoing liability for post-petition interest expense related to AP,,*,C-15 such claims. Further, the payment of these claims would eliminate the administrative burden 16 and cost of paying interest on an ongoing basis with respect to these claims, if the Interest 17 Payment Motion is granted.
18 19 D.
PG&E's Proposal For Payment Of Claims Described Herein.
20 If the Court grants this Motion, PG&E will pay all undisputed claims of $5,000 or 21 less, as well as valid reclamation and mechanics' lien claims, on or before July 31, 2002, 22 together with post-petition interest at the federal judgment rate in effect on April 6, 2001 (the 23 date of the filing of PG&E's Chapter 11 petition)--4.19% per annum-accrued on the 24 allowed amount of such claims from April 6, 2001 through June 30, 2002. With respect to 25 disputed claims, upon the resolution of such claims, either by Court order or settlement, 26 27
"'As reflected in PG&E's December Monthly Operating Report, PG&E had more than 28
$4.2 billion in cash reserves as of December 31, 2001.
MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS 1
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10 11 12 HOWARD 13 NE.
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,A.1 =. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PG&E proposes to pay the allowed amount of those claims, plus interest at the federal judgment rate (4.19% per annum), accrued from April 6, 2001 through the date of payment.
Such payments would be made on a monthly basis from and after August 1, 2002, with respect to those claims that have been resolved during the prior month (e.g., claims that are resolved in July 2002 would be paid in August 2002; claims resolved in August 2002 would be paid in September 2002, and so on).
III.
DISCUSSION A.
PG&E Should Be Authorized To Pay The Small Claims, The Mechanics' Lien Claims And The Reclamation Claims Pursuant To Section 363(b)(1) Of The Bankruptcy Code On The Basis That It Makes Sound Business Sense To Pay These Categories Of Claims Pre-Confirmation.
PG&E should be authorized to pay the three categories of claims discussed above pursuant to Section 363(b)(1) of the Bankruptcy Code, which provides that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. §363(b)(1).
In determining whether to authorize a transaction under Section 363(b)(1), courts require a debtor to show that a sound business purpose justifies such actions, applying the business judgment test. See, e._., Stephens Indus., Inc. v. McClung, 789 F.2d 386, 389-90 (6th Cir. 1986); Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983); see also 3 Lawrence P. King, Collier on Bankruptcy
¶363.02[l1]g] (15th ed. rev. 1998).
The burden of establishing a valid business purpose for a transaction outside the ordinary course of business falls upon the debtor. See In re Lionel Corp., 722 F.2d at 1066.
Once the debtor has articulated a rational business justification, however, a presumption attaches that the decision was made "on an informed basis, in good faith and in the honest belief that the action taken was in the best interest of the [debtor]." See, e.g., Official MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS 1
Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.),
2 147 B.R. 650, 656 (S.D.N.Y. 1992) (citing Smith v. Van Gorkom, 488 A.2d 858, 872 (Del.
3 1985)).
4 Here, sound business justifications exist for PG&E's pre-confirmation payment 5
of the Small Claims, the mechanics' lien claims and the reclamation claims described above.
6 PG&E will be able to resolve these three categories of claims by paying no more (and 7
probably substantially less) than $22.4. million in total. PG&E is solvent and has the cash-on 8
hand to pay these claims. Accordingly, the authorization sought by PG&E would benefit the 9
estate by reducing post-petition interest costs 12 and streamlining the claims resolution 10 process, thereby allowing PG&E to focus those resources involved in the claims process on 11 larger, more complex claims. Finally, to the extent that the Court grants the Interest 12 Payment Motion, granting this Motion would relieve the estate of the administrative burden HOVw]
13 and costs associated with issuing thousands of small checks for periodic interest payments to RKE G
14 these claimants.
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. 15 16 B.
Payment Of The Small Claims And The Mechanics' Lien And Reclamation Claims Is Practical, "Legal And Factually Inevitable," And In The Best 17 Interests Of Creditors And The Estate; Thus The Court Should Order Such 18 Payment Under Section 105 Of The Bankruptcy Code.
Although courts demonstrate some reluctance in allowing payment of pre-petition 19 claims prior to the confirmation of a plan in a Chapter 11 case, the Court has the power 20 under Section 105 of the Bankruptcy Code to order the payment of pre-petition claims where 21 circumstances warrant. In doing so, courts have been guided primarily by "practicality and 22 common sense" and the "legal or factual inevitability of payment." In re Payless Cashways.
23 Inc., 268 B.R. 543, 547 (Bankr. W.D. Mo. 2001); In re EqualNet, 258 B.R. at 368.
24 25 12As explained in the Interest Payment Motion and the Declaration of Kent Harvey filed in support thereof, PG&E's estate is incurring unnecessary interest expenses and 26 suffering a form of negative arbitrage in that the rate at which the Debtor must accrue and compound accrued interest is significantly higher than the rates that the Debtor is earning on 27 its cash holdings in today's financial markets. Interest Payment Motion at 4; Declaration of 28 Kent Harvey ¶6.
MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS I
Section 105 authorizes the court to "issue any order, process, or judgment that is 2
necessary or appropriate to carry out the provisions of this title." The purpose of Section 3
105 is "to assure the bankruptcy court's power to take whatever action is appropriate or 4
necessary in aid of the exercise of its jurisdiction." 2 Lawrence P. King, Collier on 5
Bankruptcy ¶105.01, at 105-106 (15th ed. rev. 2000); see, e.g., Crafts Precision Indus., Inc.
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- v. U.S. Healthcare, Inc. (In re Crafts Precision Indus., Inc.), 244 B.R. 178, 183 (B.A.P. 1st 7
Cir. 2000) (affirming authorization of vacation payments "pursuant to § 105, irrespective of 8
them being non-priority obligations"); Michigan Bureau of Workers' Disability Corp. v.
9 Chateaugay Corp. (In re Chateaugay Corp.), 80 B.R. 279, 287 (S.D.N.Y. 1987) (bankruptcy 10 court has equitable power, in pre-plan stage of reorganization proceeding, to authorize 11 debtor-in-possession to pay pre-petiticn debt and to allow debtor to pay some creditors in 12 class without paying others without violating Bankruptcy Code, as a "rigid application of the 13 priorities of §507 would be inconsistent with the fundamental purpose of reorganization and 14 of the [Bankruptcy Code's] grant of equity powers to bankruptcy courts, which is to create a
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15 flexible mechanism that will permit the greatest likelihood of survival of the debtor and 16 payment of creditors in full or at least proportionately"); see also In re Payless, 268 B.R. at 17 547.
18 In Payless, the bankruptcy court approved preferential payments of the pre 19 petition claims of certain suppliers to enable the debtor to obtain post-petition credit. The 20 Payless court acknowledged that "the Code recognizes that the court has some limited power 21 to authorize preferential treatment to certain creditors. The question is when it is appropriate 22 to exercise that power." Id. at 546. The court considered various factors, such as whether 23 the subject transaction "confers a benefit on the estate and its creditors, not just the payees" 24 and "[t]he extent to which there is unanimous support or strong disagreement from the 25 creditor body." Id. at 547. The Payless court also noted that the amount to be paid to. such 26 suppliers on account of their pre-petition claims represented less than 2% of the debtor's 27 total pre-petition debt. Id. In each instance, however, the overarching consideration is that 28 "the court must be guided by practicality and common sense." 268 B.R. at 546; see also In MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS 1
re EqualNet, 258 B.R. at 369 (bankruptcy court authorized debtors to pay pre-petition claim 2
tantamount to priority wages asserted by a contract employee, noting that exceptions to 3
general rule against preconfirmation payment of pre-petition claims "arise primarily out of 4
common sense and the presence of a legal or factual inevitability of payment") (emphasis 5
added); In re Public Serv. Co., 107 B.R. 441, 447 (Bankr. D.N.H. 1989) (allowing refund of 6
pre-petition customer deposits-"it is obvious that these commercial deposit refund rights 7
will ultimately be honored and no good purpose is served in withholding such payments to 8
protect against any alternative result that may occur by virtue of the reorganization").
9 Payment of the Small Claims is a practical and fair approach to dealing with the 10 thousands of Small Claims filed against the estate. PG&E anticipates that, in reality, it will 11 cost $4.7 million to satisfy such Claims. PG&E has more than sufficient cash on hand to 12 pay these claims. Similarly, the valid reclamation and mechanics' lien claims also involve a HCA 13 relatively small amount of money, and payment of these claims will benefit suppliers, with RKI c
14 which, in may cases, the Debtor maintains ongoing relationships, and which will inevitably EMJ(
&PRA.IN 15 be fully paid. Accordingly, the relief sought in this Motion would benefit the estate by 16 reducing post-petition interest expense and streamlining the claims resolution process, 17 thereby allowing PG&E to focus its resources on larger, more complex claims, without 18 prejudicing any class of creditors.
19 PG&E submits that, in the interests of the efficient administration of the estate, it 20 would be fair and reasonable not to make individuals and small business claimants with 21 valid claims await the effective date of a confirmed plan before being paid on such claims.
22 PG&E is solvent and has sufficient cash on hand to pay these large numbers. of relatively 23 small claims without causing any detriment to other creditors.
24 25 IV.
26 CONCLUSION 27 For all of the foregoing reasons, PG&E respectfully requests that this Court enter 28 its Order granting the Motion and such other and further relief as the Court deems just and MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS appropriate.
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15 16 17 18 19 20 21 22 23 24 25 26 27 28 DATED: March _, 2002.
Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation for Debtor and Debtor in Possession GAS AND ELECTRIC COMPANY WD 030502/1-1419913/cec/974602/v5 MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS 1 2