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
1 JAMES L. LOPES (No. 63678)
JANET A. NEXON (No. 104747) 2 CEIDE ZAPPARONI (No. 200708)
HOWARD, RICE, NEMEROVSKI, CANADY, 3 FALK & RABKIN A Professional Corporation 4 Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 5 Telephone: 415/434-1600 Facsimile: 415/217-5910 6
Attorneys for Debtor and Debtor in Possession 7 PACIFIC GAS AND ELECTRIC COMPANY 8
9 UNITED STATES BANKRUPTCY COURT 10 NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 11 12 Hc7/AP 13 Case No. 01 30923 DM RICE In re Chapter 11 Case PACIFIC GAS AND ELECTRIC 15 COMPANY, a California corporation, March 25, 2002 Date:
Time: 9:30 a.m.
16 Debtor. Place: 235 Pine Street, 22nd Floor San Francisco, California 17 Federal I.D. No. 94-0742640 18 19 NOTICE OF MOTION AND MOTION OF PACIFIC GAS AND ELECTRIC COMPANY FOR ORDER AUTHORIZING DEBTOR TO PAY CERTAIN OF POINTS 20 CATEGORIES OF PRE-PETITION CLAIMS; MEMORANDUM THEREOF AND AUTHORITIES IN SUPPORT 21
[SUPPORTING DECLARATION OF KEVIN J. DOWD FILED 22 CONCURRENTLY HEREWITH]
23 24 25 26 27 28 CLAIMS MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION "k/,. bfVY
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, Electric 4 located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas and 11 case 5 Company, the debtor and debtor in possession in the above-captioned Chapter an order 6 ("PG&E" or the "Debtor"), will and hereby does move the Court for entry of (1) 7 authorizing the Debtor to pay certain categories of pre-petition Claims, specifically:
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.
at or 12 Dowd filed concurrently herewith, the record of this case and any evidence presented HCM~R 13 prior to the hearing on this Motion.
RIE
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 must be 16 California, any written opposition to the Motion and the relief requested therein counsel for 17 filed with the Bankruptcy Court and served upon appropriate parties (including 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 relief without 20 opposition to the requested relief, the Court may enter an order granting such 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 and 28 to pay certain categories of pre-petition claims in advance of plan confirmation MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS (i.e.,
1 consummation. The claims that PG&E seeks to pay either are small in dollar amount types of administrative or secured 2 claims of (or reduced to) $5,000 or less), or are particular 3 claims (i.e., reclamation claims and mechanics' lien claims).
seek amounts of $5,000 4 Of all claims filed in this case, approximately one-third
$6.7 million, or 5 or less. The aggregate amount of these claims is approximately against PG&E's estate.' By 6 approximately 0.02% in dollar amount, of all claims filed be paid with cash that PG&E 7 paying, at this time, certain valid claims that would inevitably to streamline the claims resolution 8 (as a solvent debtor) currently has on hand, PG&E seeks Permission to pay these 9 process and reduce the estate's post-petition interest expense.
would enable PG&E to 10 smaller claims and the mechanics' lien and reclamation claims resources to deal with larger, more 11 discharge a large administrative burden now and free up 12 complex claims and other reorganization issues.
motion seeking an order for, HOWRD 13 Further, PG&E is filing, concurrently herewith, a RICE interest to holders of certain
""C" 14 among other things, authority to pay pre- and post-petition
&RU<N 2 To the extent that the Court AP*,WC, 15 undisputed claims (hereafter, the "Interest Payment Motion").
of this large proportion of the claims 16 grants the Interest Payment Motion, the early payment for periodic interest payments 17 against the estate will obviate the need to issue small checks 18 to thousands of claimants.
19 20 21 22 'PG&E has designated $5,000 as the threshold for claims to be paid on the basis. that, at number of claims are resolved for the least total dollar cost to 23 this dollar amount, the largest amount, payment of the claims would the estate. If the dollar threshold is raised to a higher would not 24 result in diminishing returns to the estate-i.e., the number of claims resolved increase proportionately in relation to the cost.
2The "Notice of Motion and Motion by Pacific Gas and Electric Company for Order 25 and (A) Approving Settlement and Support Agreement by and among Plan Proponents Holders Interest to 26 Senior Debtholders, (B) Authorizing Payment of Pre- and Post-Petition and Expenses of Undisputed Claims in Certain Classes, (C) Authorizing Payment of Fees Similar 27 Indenture Trustees and Paying Agents and (D) Authorizing Debtor to Enter Into the same date and time as this Motion.
28 Settlements" is set for hearing at OF PRE-PETITION CLAIMS MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES II
1 II.
3 2 FACTUAL BACKGROUNDD 3 As explained in greater detail below, by this Motion, PG&E seeks permission to 4 pay three categories of claims prior to confirmation of its Plan: (1) valid claims for amounts 5 of $5,000 or less; (2) valid mechanics' lien claims; and (3) valid reclamation claims.
6 7 A. Valid Claims For Amounts Equal To Or Less Than $5,000.4 8 Almost a third of all claims filed in this case seek amounts equal to or less than 9 $5,000 (the "Small Claims"). 5 PG&E estimates that 4,124 of the total filed claims are in 10 this category. 6 Many of the claimants who filed Small Claims are individuals or small 11 businesses. Typical of the claimants in this category are trade creditors with claims for 12 goods or services provided to PG&E, and customers seeking reimbursement for damages 13 suffered to personal property (such as appliances) due to, for example, power outages or HCAIAD w 14 surges.
&RAMIN Ahd 15 While the Small Claims represent a relatively large number of filed claims, such 16 claims represent a very small percentage of the total dollar amount of claims filed in the 17 case. The Small Claims aggregate approximately $6.7 million, or about 0.02% of the total 18 19 20 3 The evidentiary basis and support for the facts set forth in this Motion are contained in 21 the Declaration of Kevin J. Dowd filed concurrently herewith.
4The proposed treatment would apply to claims greater than $5,000 that are reduced 22 voluntarily by the claimant to $5,000.
5 This Motion generally refers to claims that have been filed against the Debtor 23 pursuant to proofs of claim. However, PG&E believes that the filed claims significantly 24 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 25 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 26 scheduled claims.
6All calculations referred to in this Motion are approximate; they represent PG&E's 27 current analysis, which will be refined as PG&E's reconciliation of the large number of claims filed herein continues.
28 MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS full of dollar amount of the remaining claims filed in this case. The proposed payment in 7
I particularly in 2 such claims would involve a sum that is not large in the context of this case, 3 light of the large number of claims that this amount would satisfy.
4 5 B. Claims Arising Out Of Mechanics' Liens.
the 6 There are approximately 50 claims asserting mechanics' liens filed against small 7 estate, totaling approximately $10.2 million. These claims represent a relatively inevitably be 8 percentage of the total claims against the estate. Such secured claims would PG&E 9 entitled to full payment, or its economic equivalent, in this solvent debtor case.
interest 10 submits that payment of these claims now will reduce the estate's post-petition 8
of resolving these claims.
11 expense and ease the administrative burden 12 HOWAD 13 C. Reclamation Claims.
return of goods 14 Certain sellers of goods have filed reclamation claims seeking the 11 petition.
15 delivered to PG&E immediately prior to or shortly after the filing of its Chapter approximately 16 Approximately 50 such claims have been filed against the estate, aggregating the total dollar amount 17 $5.5 million.9 This category of claims represents less than 0.02% of 18 of the remaining claims filed against the estate.
seller of goods 19 The Bankruptcy Code honors statutory or common law rights of a if the seller 20 to reclaim goods sold to the debtor in the ordinary course of the seller's business, 10 Valid 21 satisfies certain requirements set forth in Bankruptcy Code Section 546(c).
22
& Associates and Wayne 23 7The Court has previously disallowed the claims of Baldwin Roberts, in the aggregate amount of $9 billion.
8While PG&E's examination of these claims is not yet complete, it expects that the 24 will be no more than $10.2 million.
amount that will be required to satisfy these claims 9 One claim for approximately $1 million has been withdrawn.
25 10Such requirements include the debtor's insolvency at the time of receipt of the goods.
26 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 these claims.
litigation regarding its solvency that would be required in contesting 28 expensive 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 the federal 1 PG&E proposes to pay the allowed amount of those claims, plus interest at 2 judgment rate (4.19% per annum), accrued from April 6, 2001 through the date of payment.
with 3 Such payments would be made on a monthly basis from and after August 1, 2002, that are 4 respect to those claims that have been resolved during the prior month (e.g., claims 2002 would 5 resolved in July 2002 would be paid in August 2002; claims resolved in August 6 be paid in September 2002, and so on).
7 III.
8 9 DISCUSSION 10 11 A. PG&E Should Be Authorized To Pay The Small Claims, The Mechanics' Of Lien Claims And The Reclamation Claims Pursuant To Section 363(b)(1) To 12 The Bankruptcy Code On The Basis That It Makes Sound Business Sense Pay These Categories Of Claims Pre-Confirmation.
HOWARD 13 above NE. 14 PG&E should be authorized to pay the three categories of claims discussed
"[t]he trustee,
,A .1 =. 15 pursuant to Section 363(b)(1) of the Bankruptcy Code, which provides that course of 16 after notice and a hearing, may use, sell, or lease, other than in the ordinary 17 business, property of the estate." 11 U.S.C. §363(b)(1).
courts 18 In determining whether to authorize a transaction under Section 363(b)(1),
the 19 require a debtor to show that a sound business purpose justifies such actions, applying F.2d 386, 389-90 20 business judgment test. See, e._., Stephens Indus., Inc. v. McClung, 789 Corp.), 722 21 (6th Cir. 1986); Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel on Bankruptcy 22 F.2d 1063, 1071 (2d Cir. 1983); see also 3 Lawrence P. King, Collier 23 ¶363.02[l1]g] (15th ed. rev. 1998).
outside the 24 The burden of establishing a valid business purpose for a transaction 722 F.2d at 1066.
25 ordinary course of business falls upon the debtor. See In re Lionel Corp.,
a presumption 26 Once the debtor has articulated a rational business justification, however, and in the honest 27 attaches that the decision was made "on an informed basis, in good faith e.g., Official 28 belief that the action taken was in the best interest of the [debtor]." See, CLAIMS MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION 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 M~q( 14 these claimants.
&RIAN(IN
. 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 that is I Section 105 authorizes the court to "issue any order, process, or judgment of Section 2 necessary or appropriate to carry out the provisions of this title." The purpose is appropriate or 3 105 is "to assure the bankruptcy court's power to take whatever action Collier on 4 necessary in aid of the exercise of its jurisdiction." 2 Lawrence P. King, Indus., Inc.
5 Bankruptcy ¶105.01, at 105-106 (15th ed. rev. 2000); see, e.g., Crafts Precision 178, 183 (B.A.P. 1st 6 v. U.S. Healthcare, Inc. (In re Crafts Precision Indus., Inc.), 244 B.R.
to § 105, irrespective of 7 Cir. 2000) (affirming authorization of vacation payments "pursuant Disability Corp. v.
8 them being non-priority obligations"); Michigan Bureau of Workers' 1987) (bankruptcy 9 Chateaugay Corp. (In re Chateaugay Corp.), 80 B.R. 279, 287 (S.D.N.Y.
to authorize 10 court has equitable power, in pre-plan stage of reorganization proceeding, pay some creditors in 11 debtor-in-possession to pay pre-petiticn debt and to allow debtor to a "rigid application of the 12 class without paying others without violating Bankruptcy Code, as and the fundamental purpose of reorganization 13 priorities of §507 would be inconsistent with which is to create a 14 of the [Bankruptcy Code's] grant of equity powers to bankruptcy courts,
- RAIK(I of the debtor and A o _. 15 flexible mechanism that will permit the greatest likelihood of survival In re Payless, 268 B.R. at 16 payment of creditors in full or at least proportionately"); see also 17 547.
of the pre 18 In Payless, the bankruptcy court approved preferential payments credit. The 19 petition claims of certain suppliers to enable the debtor to obtain post-petition court has some limited power 20 Payless court acknowledged that "the Code recognizes that the is when it is appropriate 21 to authorize preferential treatment to certain creditors. The question factors, such as whether 22 to exercise that power." Id. at 546. The court considered various not just the payees" 23 the subject transaction "confers a benefit on the estate and its creditors, from the 24 and "[t]he extent to which there is unanimous support or strong disagreement amount to be paid to. such 25 creditor body." Id. at 547. The Payless court also noted that the than 2% of the debtor's 26 suppliers on account of their pre-petition claims represented less consideration is that 27 total pre-petition debt. Id. In each instance, however, the overarching B.R. at 546; see also In 28 "the court must be guided by practicality and common sense." 268 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 1 appropriate.
2 3 DATED: March _, 2002.
Respectfully, 4
HOWARD, RICE, NEMEROVSKI, CANADY, 5 FALK & RABKIN A Professional Corporation 6
7 8
for Debtor and Debtor in Possession 9 GAS AND ELECTRIC COMPANY 10 WD 030502/1-1419913/cec/974602/v5 11 12 HOMMR 13 Nr 14
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,O*cb. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MOT. FOR AUTH. TO PAY CERTAIN CATEGORIES OF PRE-PETITION CLAIMS