ML023330352
| ML023330352 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 11/20/2002 |
| From: | Bomse A Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Pacific Gas & Electric Co |
| To: | Montali D Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California |
| References | |
| 01-30923 DM, 94-0742640 | |
| Download: ML023330352 (10) | |
Text
1 GARY M. KAPLAN (No. 155530)
AMY L. BOMSE (No. 218669) 2 HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN 3 A Professional Corporation Three Embarcadero Center, 7th Floor 4 San Francisco, California 94111-4024 Telephone: 415/434-1600 5 Facsimile: 415/217-5910 6 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY 7
8 UNITED STATES BANKRUPTCY COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 SAN FRANCISCO DIVISION 11 12 In re Case No. 01-30923 DM Chapter 11 Case HOWARD 13 PACIFIC GAS AND ELECTRIC mN 14 COMPANY, a California corporation, Date: December 23, 2002 Debtor. Time: 1:30 p.m.
,. .15 Place: 235 Pine Street San Francisco, California Judge: Hon. Dennis Montali 16 Federal I.D. No. 94-0742640 17 18 NOTICE OF MOTION AND MOTION BY PACIFIC GAS AND ELECTRIC COMPANY FOR AN ORDER APPROVING SETTLEMENT OF DEBTOR'S 19 CLAIMS AGAINST TRAVELERS PROPERTY AND CASUALTY ET AL.;
MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF 20
[SUPPORTING DECLARATION OF DAVID H. RUSH FILED SEPARATELY]
21 22 23 24 25 26 27 28 MOTION FOR ORDER APP. SETTLEMENT & MPA ISO
/4W/
1 NOTICE OF MOTION AND MOTION 2
3 PLEASE TAKE NOTICE THAT on December 23, 2002, at 1:30 p.m., or as 4 soon thereafter as the matter may be heard, in the Courtroom of the Honorable Dennis 5 Montali, located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas and 6 Electric Company, the debtor and debtor-in-possession in the above-captioned case 7 ("PG&E" or the "Debtor"), will and hereby does move the Court for an order approving 8 settlement of the Debtor's claims against Travelers Property And Casualty et al. (the 9 "Motion"). The Motion seeks entry of an order by the Bankruptcy Court authorizing PG&E 10 to settle its claims against Travelers Insurance Company, American Motorist Insurance 11 Company, TIG Insurance Company (collectively the "Insurers") and Utility Tree Service 12 ("UTS"), pursuant to a Settlement Agreement, a copy of which is attached as Exhibit "A" to 13 the Declaration of David H. Rush in Support of the Motion ("Rush Declaration") filed S14 concurrently herewith.
tBK 15 This Motion is brought pursuant to Rule 9019(a) of the Federal Rules of 16 Bankruptcy Procedure (the "Bankruptcy Rules"), and is based on the facts and law set forth 17 in the Memorandum of Points and Authorities herein, the Rush Declaration, the record of 18 this case and any evidence presented at or prior to the hearing on this Motion.
19 PLEASE TAKE FURTHER NOTICE THAT pursuant to Rule 9014-1(c)(2) of 20 the Bankruptcy Local Rules for the Northern District of California, any written opposition to 21 the Motion and the relief requested therein must be filed with the Bankruptcy Court and 22 served upon appropriate parties (including counsel for PG&E, the Office of the United States 23 Trustee and the Official Committee of Unsecured Creditors) at least five (5) days prior to the 24 scheduled hearing date. If there is no timely objection to the requested relief, the Court may 25 enter an order granting such relief without further hearing.
26 27 28 MOTION FOR ORDER APP. SETTLEMENT & MPA ISO 1 MEMORANDUM OF POINTS AND AUTHORITIES 2 I. INTRODUCTION.
3 PG&E seeks Court approval of the proposed settlement (the "Settlement") of its 4 claims against the Insurers and UTS as described below, pursuant to the terms of a 5 settlement agreement, a copy of which is attached as Exhibit A to the Rush Declaration (the of 6 "Settlement Agreement"). The Settlement includes a total recovery to PG&E 7 $1,500,000.00 and a release of the Insurers' claims against PG&E.
8 9 II. FACTUAL BACKGROUND. 1 10 The following is a summary of the events leading up to the litigation and of the 11 terms of the Settlement. It is intended only as a brief overview of relevant facts.
12 Utility Tree HCNWD 13 A. The Trauner Fire And PG&E's Claim For Indemnification Against Ruc Services, Inc.
"" 14 15 On August 7, 1994, a fire occurred in the area of Rough and Ready, California 16 (the "Trauner Fire"). The fire destroyed more than 700 acres, including several houses, 17 barns and buildings.
18 At the time of the Trauner Fire, UTS was PG&E's independent tree trimming 19 contractor in the area. The contract between PG&E and UTS required UTS to defend and other 20 indemnify PG&E for damages resulting from the work of the tree trimming contractor, 21 than damages resulting from the sole negligence or willful misconduct of PG&E.
parties 22 Accordingly, PG&E tendered its defense of the actions being filed against it by third to 23 to UTS. UTS refused PG&E's tender based on its assertion that the Trauner Fire was due 24 the sole negligence and/or willful misconduct of PG&E.
25 On November 7, 1994, PG&E filed an action against UTS and the Insurers in 26 Nevada County Superior Court (assigned Case No. 52984) seeking indemnity, defense and 27
'The evidentiary basis and support for the facts set forth in this Motion are contained in 28 the Rush Declaration.
MOTION FOR ORDER APP. SETTLEMENT & MPA ISO 1 insurance coverage for the damages to PG&E as a result of the Trauner Fire. On May 18, 2 1995, the parties agreed to submit this matter to binding arbitration.
3 The three-judge arbitration panel selected by the parties issued an award (the 4 "Award") in favor of PG&E on April 2, 1996. The arbitrators determined that the Trauner 5 Fire was not caused by the sole negligence or willful misconduct of PG&E, and therefore 6 PG&E was entitled to full coverage, defense and indemnity for claims arising out of the 7 Trauner Fire under the indemnity provisions contained in PG&E's contracts with UTS and 8 the insurance policies issued by the Insurers. The arbitrators did not determine the amount 9 owed to PG&E by UTS and the Insurers in the Award.
10 On May 20, 1996, PG&E initially filed its Petition to Confirm Arbitration Award 11 (the "Petition to Confirm") with the Nevada County Superior Court. The Petition to 12 Confirm was taken off calendar without prejudice while the parties engaged in extensive HOVABD 13 litigation with the victims of the Trauner Fire.
S14 BýIK
&RAtMRN 15 B. The Action Against PG&E By Nevada County And The Claim By The Insurers 16 In That Action While this litigation was ongoing, the Nevada County District Attorney filed 17 misdemeanor charges against PG&E for violation of certain Public Resource Code Sections, 18 based upon the California Department of Forestry's determination that the Trauner Fire was 19 caused by contact between a tree and an overhead PG&E distribution line. As a result of a 20 liable and 21 trial in Nevada County Municipal Court, on July 30, 1997, the Court found PG&E as a result 21 22 ordered it to pay full direct restitution to all persons who suffered economic losses of the Trauner Fire (the "Restitution Order").
23 On November 6, 1997, the Insurers filed a claim in the criminal action against 24 25 PG&E for restitution in the amount of $4,654,318.45, for damages they allegedly sustained as a result of the Trauner Fire. On February 3, 1998, the Insurers filed an amended claim for 26 restitution in the amount of $6,254,318.45 plus interest-at the rate of 10% per annum.
27 28 MOTION FOR ORDER APP. SETTLEMENT & MPA ISO I C. PG&E and the Insurers Engage in Settlement Negotiations 26, 2000, the 2 PG&E refiled its Petition to Confirm on May 17, 2000. On May hearing to enable PG&E 3 Superior Court confirmed the Award and scheduled an evidentiary was subsequently 4 to establish the actual damages to which it was entitled. That hearing 5 continued pending settlement negotiations between the parties.
relief 6 On August 30, 2000, the Insurers and UTS filed a complaint for declaratory precluded PG&E 7 against PG&E, contending that California Insurance Code Section 533.5 Award due to the 8 being awarded at least some of its damages pursuant to the Arbitration 9 Restitution Order.
and 10 On September 21, 2000, an offer was conveyed to PG&E by the Insurers parties 11 UTS to settle all of the foregoing claims. PG&E responded by requesting that the 12 proceed to mediation.
and August 30, 2001, before 13 Mediation was conducted on March 29, 2001, 1
1e sRR Ramsey.
Joseph N' 14 15 In its Mediation Brief, PG&E requested the following damages:
16 Claims paid by PG&E to fire damage victims prior $1,711,209.96 to arbitration 17 Monies paid to independent investigators, appraisers, 26,454.25 18 etc.
19 Adjusting expenses 63,672.50 20 Cost to repair damages to PG&E facilities 83,504.00 21 Payments for fire clean-up costs, tree removal, etc. 117,070.31 22 Attorneys' fees and costs 113,532.62 23 Total $2,115,443.64 Brief at 10%
24 Interest on the foregoing amounts was requested in the Mediation March 29, 2001, the 25 per annum from and after April 2, 1996, the date of the award, through by PG&E can be 26 date of the first mediation. Accordingly, the total damages requested 27 summarized as follows:
28 MOTION FOR ORDER APP. SETTLEMENT & MPA ISO 1 Principal $2,115,443.64 2 Interest $1,057,721.82 3 Total $3,173,165.46 4
5 In their Mediation Brief, the Insurers and UTS asserted the following defenses 6
regarding their liability to PG&E:
7 1
- 1. PG&E's claim for reimbursement of monies paid to victims of the Trauner 8 that I Fire should be dismissed because it violates Insurance Code Section 533.5 (providing 9 action) as insurance policies may not cover payment of any restitution ordered in a criminal 10 object of well as California Civil Code Section 1668 (providing that contracts with the 11 the avoiding responsibility for violations of law are against public policy). In the alternative, 12 the Insurers and UTS argued that even if the entire reimbursement claim was not eliminated, 13 in its HCkWD RE 13 claim should be reduced because the claims that PG&E settled that are included
"' 14 subject to S Petition to Confirm include liability for punitive damages, which are not A*.*** 15 reimbursement.
16
- 2. PG&E's claim for damage to its property constitutes a contract claim, which 17 is barred by the applicable statute of limitations.2 18
- 3. PG&E was not entitled to interest on three grounds: first, pre-judgment 19 interest statutes do not apply to contractual arbitration; second, damages were not certain 20 not award from the date on which the right to receive them vested because the arbitrators did 21 and a certain sum; and third, PG&E failed to diligently prosecute its Petition to Confirm 22 should not benefit from its lack of diligence.
21 The Insurers and UTS did not dispute PG&E's right to reimbursement of its costs 24 for fire clean-up and tree removal, attorneys' fees and independent investigating, and 25 adjusting expenses.
26 27 2At the mediation, however, there was no discussion of PG&E's claim for damages to 28 its property.
MOTION FOR ORDER APP. SETTLEMENT & MPA ISO 1 D. The Parties Agree To A Settlement Agreement Subject To Bankruptcy Court Approval 2 On August 30, 2001 the parties entered into a preliminary mediation settlement 3 agreement. The agreement was then formalized in the subsequent Settlement Agreement, 4 which was signed by all parties on April 22, 2002. That Settlement Agreement is subject to 5
the approval of this Court.
6 The Settlement Agreement contains, inter alia, the following material terms:
7
- The Insurers and UTS will pay to PG&E the total amount of $1,500,000.00 8 payable within 30 days of approval by the Bankruptcy Court.
9
- All parties completely release and discharge all claims arising from, or in any 10 way connected with, the Trauner fire of August 7, 1994.
11 12 III. ARGUMENT.
HND13 RKE A. The Settlement Should Be Approved Because It Is Fair And Equitable And In "C 14 The Best Interests Of The Estate 15 "The law favors compromise and not litigation for its own sake " Martin v.
16 have Kane (In re A&C Properties), 784 F.2d 1377, 1381 (9th Cir. 1986). Bankruptcy courts 17 great latitude in approving compromise agreements that are "fair and equitable." Woodson 18
- v. Fireman's Fund Ins. Co. (In re Woodson), 839 F.2d 610, 620 (9th Cir. 1988). In passing 19 on a proposed compromise, courts consider the following factors:
20 (a) The probability of success in the litigation; (b) the difficulties, if 21 any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay 22 necessarily attending it; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises. (A&C 23 Properties, 784 F.2d at 1381 (citation omitted))
24 PG&E has carefully considered the merits of its claims as well as its own 25 exposure to claims by the Insurers and UTS, and concluded, in the exercise of its business 26 the relevant A&C judgement, that the settlement terms are fair and reasonable and that below.
27 Properties factors weigh in favor of settlement, as demonstrated 28 MOTION FOR ORDER APP. SETTLEMENT & MPA ISO 1 B. The Settlement Represents A Reasonable Compromise In Light Of The Uncertainty Of The Outcomes Of Legal Disputes And PG&E's Exposure To 2 Restitution Claims By The Insurers 3 1. PG&E's Indemnity Claim And Interest Thereon Insurers and UTS 4 By far the largest portion of PG&E's damage claim against the accrued on 5 is based on its payments of claims to victims of the Trauner Fire and interest merit of PG&E's claim for 6 such payments. Thus, the central issue in this litigation is the 7 reimbursement of these costs.
and payments 8 The arbitrators found that PG&E was entitled to indemnification sole 9 by the Insurers and UTS on the grounds that the Trauner Fire did not result from the that this 10 negligence or willful misconduct of PG&E. However, the Insurers and UTS assert or not 11 was purely a factual determination and did not address the legal question of whether based on the Restitution 12 the defendants are legally prevented from reimbursing PG&E by Insurers and UTS that California HOW&M 13 Order. PG&E does not agree with the argument however, PG&E CAMD, FdRANON 14 Insurance Code Section 553 precludes their liability to PG&E; AhkCX 15 acknowledges the possibility that such argument may prevail.
that at least 16 Additionally, the Insurers and UTS have argued, in the alternative, to punitive damages 17 twenty-five percent of PG&E's payments to victims is attributable for 18 claims. The Insurers and UTS argue that it is against the law to insure or indemnify 19 punitive damages and, therefore, PG&E's claim for reimbursement of payments made to UTS's contention that 20 victims must be reduced by 25%. PG&E disputes the Insurers' and 21 there is such a basis for reducing the amount owed to PG&E.
is recoverable 22 PG&E maintains that interest on its $2.115 million damages claim one-third of 23 at the rate of 10% per annum from and after April 2, 1996. Approximately 24 PG&E's total claim (or about $1.057 million) is attributable to such interest. However, contend that PG&E 25 because the Award did not award a sum certain, the Insurers and UTS Civil Code 26 cannot prevail on its interest claim. Such assertions are based on California be certain or 27 Section 3287, which provides that recovery of interest on damages must the right to receive 28 capable of being made certain by calculation from the date on which MOTION FOR ORDER APP. SETTLEMENT & MPA ISO Had the 1 damages vests. PG&E disputes the Insurers' and UTS's contentions on this issue.
was 2 matter proceeded to litigation, PG&E would have argued that the amount of interest previously 3 capable of being made certain based on the claim information that PG&E 4 produced to the Insurers and UTS.
5 However, in view of the uncertainty of the outcome of these legal disputes, a
6 PG&E has concluded that the Settlement payment to it of $1.5 million represents 7 reasonable compromise.
8 9 2. Release Of Claims Against PG&E 10 In the Settlement Agreement, the Insurers and UTS completely release and any way connected 11 discharge PG&E and all related parties for any claims arising out of or in the amount of 12 with the Trauner Fire. The Insurers previously filed a restitution claim in Order. The elimination of 13 $6,254,318.45 plus interest in connection with the Restitution value to the S14 PG&E's exposure to such restitution claims by the Insurers is of significant
_, 15 estate.
16 17 C. Continued Litigation Would Entail UnneceSsary Expense And Delay 18 If this matter is not settled, PG&E faces ongoing litigation of both its claims 19 against the Insurers and UTS, and the Insurers' claims against PG&E for restitution.
time 20 Litigation of these two actions would presumably require PG&E to expend significant the 21 and resources and may result in a smaller recovery by PG&E as compared with 22 Settlement and, perhaps, additional liabilities.
23 24 D. The Settlement Benefits The Creditors 25 Avoidance of unnecessary litigation will benefit PG&E's creditors by avoiding critical 26 the expense and delay of litigation and allowing PG&E's personnel to focus on more 27 functions. The Settlement will add $1.5 million to the estate and avoid the risk of a smaller 28 recovery if the matter continued to be litigated. In addition, the Settlement provides a MOTION FOR ORDER APP. SETTLEMENT & MPA ISO 1 substantial benefit to the estate by eliminating the Debtor's potential exposure to the multi 2 million dollar restitution claims by the Insurers.
3 4 CONCLUSION 5 Based on all of the factors discussed above, the Debtor submits that Settlement is in 6 fair and equitable and in the best interest of the estate. The Settlement is advantageous from 7 that it provides immediate and significant recovery on PG&E's claims, protects PG&E litigation.
8 exposure to significant claims against it and avoids the expense and uncertainty of 9 Therefore, the settlement is optimal for PG&E and its estate.
10 Accordingly, PG&E respectfully requests that this Court enter its order approving 11 the Settlement and authorizing PG&E to enter into and perform its obligations under the 12 Settlement Agreement.
HO~hW 13 DATED: November_2, 2002.
RICE V 14 Respectfully,
. 15 HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation 17 By: ZO¢ 18 - AMYAE. BOMSE 19 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY 20 21 22 23 24 25 26 27 28 WD 102402/2-1419913/Y8/1011770/v3 MOTION FOR ORDER APP. SETTLEMENT & MPA ISO