ML022960333
| ML022960333 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 10/07/2002 |
| From: | Nexon J Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Pacific Gas & Electric Co |
| To: | Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California |
| References | |
| 01-30923 DM, 94-0742640 | |
| Download: ML022960333 (10) | |
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9 10 11 12 HOVAR\\D 13 R=1 a,.15 16 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:
October 29, 2002 Time: 1:30 p.m.
Place: 235 Pine Street, 22nd Floor San Francisco, California Judge: Hon. Dennis Montali NOTICE OF MOTION AND MOTION FOR ORDER AUTHORIZING ASSUMPTION OF CERTAIN PRE-PETITION SETTLEMENT AGREEMENTS C15'(40)
X MOTION FOR ORDER AUTHOR. ASSUMPTION OF SETTLEMENT AGREEMENTS I
JAMES L. LOPES (No. 63678)
JANET A. NEXON (No. 104747)
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 17 18 19 20 21 22 23 24 25 26 27 28
(?, 41" e
1 NOTICE OF MOTION 2
PLEASE TAKE NOTICE THAT on October 29, 2002 at 1:30 p.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, the above-captioned 5
Bankruptcy Court will hold a hearing on the Motion for Order Authorizing Assumption of 6
Certain Pre-Petition Settlement Agreements filed herein by Pacific Gas and Electric 7
Company, the debtor and debtor in possession in the above-captioned Chapter 11 case 8
("PG&E" or the "Debtor"). The Motion seeks entry of an order by the Bankruptcy Court 9
authorizing PG&E to assume certain pre-petition settlement agreements and pay amounts 10 owed thereunder, and is made pursuant to Sections 365 and 105(a) of the United States 11 Bankruptcy Code (11 U.S.C.§§ 105(a) and 365), and is based on the facts and law set forth 12 herein (including the accompanying Memorandum of Points and Authorities beginning on the HOVR 13 next page), the Declaration of Barbara J. Damlos filed concurrently herewith (hereinafter c<'
14 referred to as the "Damlos Declaration"), the record of this case and any evidence presented 15 at or prior to the hearing on this Motion.
16 PLEASE TAKE FURTHER NOTICE that pursuant to Rule 9014-1(c)(2) of the 17 Bankruptcy Local Rules for the Northern District of California, any written opposition to the 18 Motion and the relief requested therein must be filed with the Bankruptcy Court and served 19 upon appropriate parties (including counsel for PG&E, the Office of the United States Trustee 20 and the Official Committee of Unsecured Creditors) at least five (5) days prior to the 21 scheduled hearing date. If there is no timely objection to the requested relief, the Court may 22 enter an order granting such relief without further hearing.
23 24 25 26 27 28 MOTION FOR ORDER AUTHOR. ASSUMPTION OF SETTLEMENT AGREEMENTS S-I-I
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9 10 11 12 13 RIXE S14 16 17 18 19 20 21 22 23 24 25 26 27 28 INTRODUCTION' Pacific Gas and Electric Company ("PG&E"), debtor and debtor in possession herein, commenced this Chapter 11 case by filing a voluntary petition on April 6, 2001.
PG&E continues to manage and operate its property as a debtor in possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
PG&E hereby seeks an order of this Court pursuant to Bankruptcy Code Sections 365 and/or 105 approving the assumption of nineteen (19) settlement agreements entered into by PG&E, as defendant in various personal injury actions, as listed on Exhibit A hereto (the "Settlement Agreements"), and payments of amounts owed thereunder. Each of the Settlement Agreements resolves a personal injury action against PG&E, and the amounts owed thereunder are payable to individual plaintiffs and their respective counsel. The Settlement Agreements were entered into pre-petition, and in each case, there are material unperformed obligations thereunder on the part of both parties. In each case, the plaintiff has the obligation, so far unperformed, to execute a release and/or file a dismissal of the action, while PG&E has the obligation to make a one-time payment. The lawsuits have not been dismissed as of the date hereof.
As noted on Exhibit A hereto, the amount of the settlement payments to be made by PG&E range from $6,000 to $200,000, with the average payment being approximately
$37,000.
PG&E seeks this relief on the grounds that payment of the amounts owed under the Settlement Agreements represents a minimal cost to the estate, while PG&E's continued failure to make such payments may impose a serious hardship on the individual plaintiffs who are parties to the Settlement Agreements.
1 The evidentiary basis and support for the facts set forth in this Application are contained in the Damlos Declaration filed concurrently herewith.
MOTION FOR ORDER AUTHOR. ASSUMPTION OF SETTLEMENT AGREEMENTS 1
DISCUSSION 2
Section 365 of the Bankruptcy Code governs the treatment of executory 3
agreements following the filing of a bankruptcy petition. Section 365 provides that "the 4
trustee [or debtor in possession], subject to the court's approval, may assume or reject any 5
executory contract or unexpired lease of the debtor." 11 U.S.C. §365(a). By this Motion, 6
PG&E asks the Court to enter an order pursuant to Section 365(a) of the Bankruptcy Code, 7
authorizing PG&E to assume the Settlement Agreements or, to the extent the Settlement 8
Agreements are not "executory contracts" within the meaning of Section 365, to enter an 9
order pursuant to Section 105(a) of the Bankruptcy Code permitting payment of the amounts 10 owed under the Settlement Agreements, in accordance with the terms thereof.
11 12 A.
The Settlement Agreements May Be Considered Executory Contracts.
13 For purposes of the Bankruptcy Code, the Supreme Court has defined "executory NI<'
14 contract" as a contract on which "performance remains due to some extent on both sides."
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15 NLRB v. Bildisco & Bildisco, 465 U.S. 513, 522 n.6 (1984) (citation omitted). Similarly, the 16 Ninth Circuit has held that Section 365 refers to those contracts in which the obligations of 17 both parties "are so far unperformed that the failure of either party to complete performance 18 would constitute a material breach and thus excuse the performance of the other."
19 Commercial Union Ins. Co. v. Texscan Corp. (In re Texscan Cor.), 976 F.2d 1269, 1272 20 (9th Cir. 1992).
21 The Settlement Agreements are executory in nature. Pursuant to the Settlement 22 Agreements, the plaintiffs have the obligation to execute releases and to dismiss their actions 23 with prejudice, while PG&E has the obligation to make certain payments to the plaintiffs.
24 The Settlement Agreements thus constitute executory contracts that may be assumed pursuant 25 to Section 365(a) of the Bankruptcy Code.
26 Courts have consistently recognized that settlement agreements are contracts for 27 purposes of Section 365. See Enterprise Energy Corp. v. United States ex rel. IRS (In re 28 Columbia Gas Systems, Inc.), 50 F.3d 233, 238 (3d Cir. 1995). Whether a settlement MOTION FOR ORDER AUTHOR. ASSUMPTION OF SETT'LEMENT AGREEMENTS A
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I agreement is "executory" within the meaning of Section 365 is determined on a case-by-case 2
basis in light of the terms of the contract at issue. See, e._., Shoppers World Cmt=. Ctr. v.
3 Bradlees Stores, Inc. (In re Bradlees Stores, Inc.), 47 Lawrence P. King, Collier Bankruptcy 4
Cas. 2d (MB) 23, 34 (S.D.N.Y. 2001)(holding that a settlement agreement regarding a lease 5
was an executory contract where both sides had continuing obligations, including the 6
landlord's obligation not to disturb the tenant's use, enjoyment and possession of the property 7
and the tenant's obligation to execute a direct lease).
8 Although one noted case has held that a settlement agreement was not executory 9
where the only remaining obligations of the plaintiff class members were to execute releases 10 and complete supplemental contracts with the debtor (In re Columbia Gas Systems, Inc., 50 11 F.3d 233 (3d Cir. 1995)), the settlement agreement at issue in that case is distinguishable 12 from the Settlement Agreements the Debtor wishes to assume. In Columbia Gas, the Court HONA 13 relied heavily on the fact that the court order approving the settlement provided that the cause RXE 14 of action against the debtor was extinguished regardless of whether the plaintiff executed a EUX
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15 release. "A class member who failed to execute a release would not get its share of the 16 settlement fund, but [the debtor] would still get-the benefit of the class member's inability to 17 sustain a cause of action." Id. at 242. Therefore, the court reasoned, the requirement of the 18 plaintiff s execution of a release was merely a condition to payment of the settlement amount, 19 and did not render the settlement agreement executory.
20 In this case, unlike in Columbia Gas, the plaintiffs release and dismissal of the 21 action is a necessary component of each Settlement Agreement. If the plaintiff fails to sign 22 the release and to dismiss the action, the cause of action is not extinguished, and the 23 obligation of the Debtor to pay the settlement amount would be excused. Accordingly, there 24 are material obligations to be performed on both sides of the Settlement Agreements, and 25 they can be deemed to be executory contracts within the meaning of Section 365.
26 B.
PG&E's Assumption of the Settlement Agreements Should Be Permitted Under the Business Judgment Test.
27 28 The widely accepted test for determining whether a debtor in possession should be MOTION FOR ORDER AUTHOR. ASSUMPTION OF SETTLEMENT AGREEMENTS
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1 authorized to assume or reject an executory contract is the business judgment test. See 2
Robertson v. Pierce (In re Chi-Feng Huang), 23 B.R. 798, 800 (B.A.P. 9th Cir. 1982) 3 (citations omitted). PG&E's decision to assume the Settlement Agreements constitutes the 4
exercise of sound business judgment, and should be approved by this Court. As discussed 5
below, the total amount of money the Debtor requests to pay ($697,499) represents a very 6
small percentage of the Debtor's total assets, with the average amount owed to each plaintiff 7
under the Settlement Agreements being approximately $37,000, while the Debtor's continued 8
inability to make payments under the Settlement Agreements may impose hardships on the 9
plaintiffs party to the Settlement Agreements.
10 C.
PG&E Has the Ability to Cure Arrearages Under the Settlement Agreements 11 In Compliance with Section 365(b) of the Bankruptcy Code.
Section 365(b)(1) of the Bankruptcy Code provides that, in order to assume an 12 executory contract, the debtor in possession must provide adequate assurance that it promptly HOAMRD 13 RKE*
will cure any defaults and that the contract will be performed in the future. 11 U.S.C.
'CANUT 14
§365(b)(1)(A)-(C). The amount necessary to cure the amounts owed under the Settlement
,-*..15 Agreements is $697,499 in the aggregate.
16 PG&E has substantial cash reserves and ongoing revenues, as demonstrated in 17 numerous filings before this Court, and is clearly capable of curing arrearages and completing 18 its future performance under the Settlement Agreements.
19 20 D.
This Court Should Authorize Payment Of Amounts Owed Under the Settlement Agreements Pursuant To Section 105(a) And The Court's 21 Inherent Powers.
22 Even if this Court determines that the Settlement Agreements are not executory 23 contracts that may be assumed pursuant to Section 365, PG&E requests that this Court 24 authorize the payment of amounts outstanding under the Settlement Agreements pursuant 25 Section 105(a) of the Bankruptcy Code and the Court's inherent powers. Section 105 26 authorizes this Court to "issue any order, process, or judgment that is necessary or appropriate 27 to carry out the provisions of this title." The purpose of Section 105 is "to assure the 28 bankruptcy court's power to take whatever action is appropriate or necessary in aid of the MOTION FOR ORDER AUTHOR. ASSUMPTION OF SETTLEMENT AGREEMENTS 1
exercise of their jurisdiction." 2 Lawrence P. King, Collier on Bankruptcy, § 105.01 at 105 2
06 (15th ed. rev. 2000).
3 Although payment of pre-petition claims prior to confirmation of a plan in a 4
chapter 11 case is generally not allowed, Section 105(a) confers the power to authorize 5
payments irrespective of priorities where circumstances so warrant. See, e._-, Crafts 6
Precision Indus. v. U. S. Healthcare, Inc. (In re Crafts Precision Indus., Inc.), 244 B.R. 178, 7
183, (1st Cir. B.A.P. 2000) (affirming authorization of vacation payments "pursuant to Section 8
105, irrespective of them being non-priority obligations"); In re Equalnet Communications 9
CoW., 258 B.R. 368, 369 (Bankr. S.D. Tex. 2000) (exceptions to general rule against pre 10 confirmation payment of pre-petition claims "arise primarily out of common sense and the 11 presence of a legal or factual inevitability of payment.").
12 The reasoning of these cases applies to the Debtor's request for authority to make 13 the payments provided under the Settlement Agreements. The Debtor's continued inability to m
14 make payments under the Settlement Agreements may impose hardships on the plaintiffs Di1x
, JRA.H(IN
,qz.a 15 party to the Settlement Agreements, who are involuntary creditors of the Debtor.
16 Additionally, the total amount of money the Debtor requests to pay ($697,499) represents a 17 very small percentage of the Debtor's total assets, with the average amount owed to each 18 plaintiff under the Settlement Agreements being approximately $37,000.
19 In sum, equitable considerations mitigate in favor of authorizing the Debtor to pay 20 amounts owed under and in accordance with the terms of the Settlement Agreements.
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CONCLUSION For the foregoing reasons, PG&E respectfully requests that the Court enter an order approving PG&E's assumption of and payment of amounts owed under the Settlement Agreenments pursuant to Sections 365(a) and/or 105 of the Bankruptcy Code.
DATED: October 7,,2002.
Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation By
- _________C-A JANET A. NEXON Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY WD 100702/F-1419905/Y9/1017635/v3 MOTION FOR ORDER AUTHOR. ASSUMPTION OF SETTLEMENT AGREEMENTS 1
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Exhibit A Litination Executory Contracts Carranza, Reyna as Guardian Ad Litem for
$7,500 Antonio H. Carranza, a minor and Juan J.
Vera, Inc., his attorneys Correia, Manuel [Brayton, Purcell as Trustees
$8,500 for]
Dajani, Majed [Khaldoun Baghdadi, attorne,
$11,000 fori Figueroa, John [Bennett Johnson & Galler,
$10,000 attorneys for]
Gallegos, Angelina [David Allen &
$7,500 Associates, attorneys of record for]
Gilmore, Cindy and Pederson, Marvin
$6,000 Guill, James [Chain, Younger, Cohn & Stiles,
$135,000 attorneys for]
Holman, Odell & Betty [Paul & Hanley as
$20,000 Trustees for]
Johnson, Curtis L. in Trust for Douglas,
$200,000 Pamela and Melissa Cunningham Kale, Donna [Brayton, Purcell as Trustees
$30,000 for]
Mauroni, Adele
$15,000 Murphy, Timothy [Brayton, Purcell as
$9,999 Trustees for]
Murray, Everett & Oneta [Paul Hanley as
$65,000 Trustees for]
Pittson, Norma [Brayton, Purcell as Trustees
$30,000 for]
Pollington, William [Brayton, Purcell as
$50,000 Trustees for]
Rogers & Miller [In Trust for Fire Insurance
$27,000 Exchange (Hiatt/Patton)]
Samford, Joe & Freddie [Paul & Hanley as
$15,000 Trustees for]
MOTION FOR ORDER AUTHOR. ASSUMPTION OF SETLEMENT AGREEMENTS i I
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Story, Diane [Brayton, Purcell as Trustees
$15,000 for]
Terry, Flossie [c/o Wartnick]
$35,000 Total
$697,499.00 1
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WD 100402/2-1419905/Y12/1017635/v2 MOTION FOR ORDER AUTHOR-ASSUMPTION OF SE'ITLEMENT AGREEMENTS