ML030700354
| ML030700354 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 03/04/2003 |
| From: | Schaffer 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 D M, 94-0742640 | |
| Download: ML030700354 (11) | |
Text
JAMES L. LOPES (No. 63678)
JEFFREY L. SCHAFFER (No. 91404)
KENNETH A. NEALE (No. 126904)
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
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9 10 11 12 HC&VM 13 cANut 14
&RIANN 15 16 17 18 19 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
[No Hearing Scheduled]
EX PARTE APPLICATION FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS OF CALIFORNIA DEPARTMENT OF TOXIC SUBSTANCES CONTROL AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF
[DECLARATION OF JAMES BECKER IN SUPPORT OF APPLICATION FILED SEPARATELY]
W/41 EX PARTE APP. FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS WITH DTSC Attorneys for Debtor and Debtor in Possession PACIFIC GAS and ELECTRIC COMPANY UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 20 21 22 23 24 25 26 27 28
1 APPLICATION 2
Pacific Gas and Electric Company ("PG&E" or the "Debtor"), the debtor and debtor in 3
possession in the above-captioned Chapter 11 case, hereby applies to the Court for entry of 4
an order authorizing PG&E to enter into, and pay penalties and costs under, a Consent Order 5
resolving ongoing claims by the California Department of Toxic Substances Control 6
("DTSC"). Under the Consent Order, PG&E would pay certain penalties and agree to a 7
timetable for complying with certain operational requirements in connection with its 8
operation of the Diablo Canyon Power Plant. A true copy of the Consent Order is attached 9
as Exhibit A to the Declaration of James Becker filed concurrently herewith.
10 This Application is brought pursuant to Rule 9019 of the Federal Rules of Bankruptcy 11 Procedure and Section 105(a) of the United States Bankruptcy Code (11 U.S.C. § 105(a)) and 12 is based on the grounds that the proposed Consent Order is fair and equitable and in the best 13 interests of the bankruptcy estate. In light of (i) the relatively de minimis effect of the N
W14 Consent Order on PG&E in the context of this Chapter 11 case and PG&E's multifaceted NA/K
- ,*.. 15 operations, (ii) the noticing of this Application to the United States Trustee and the'Official 16 Committee of Unsecured Creditors (the "Committee"), and (iii) the Committee's pre-review 17 of this Application and its signature below evidencing that it has no objection to the granting 18 of the relief requested, this Application is being submitted ex parte without scheduling a 19 hearing. PG&E submits that there has been sufficient notice and opportunity for a hearing as 20 is appropriate under the particular circumstances.
21 22 MEMORANDUM OF POINTS AND AUTHORITIES 23 INTRODUCTION 24 PG&E commenced this Chapter 11 case by the filing of a voluntary petition on April 6, 25 2001.
PG&E continues to manage and operate its property as a debtor in possession 26 pursuant to Sections 1107 and 1108 of the Bankruptcy Code. PG&E submits this brief in 27 support of its Ex Parte Application For Order Authorizing Compromise Of Claims Of 28 California Department Of Toxic Substances Control (the "Application").
By the EX PARTE APP. FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS WITH DTSC 1
Application, PG&E seeks authorization to enter into and be bound by, and make payments 2
under, that certain Consent Order with the DTSC, a copy of which is attached as Exhibit A 3
to the Declaration of James Becker filed concurrently herewith (the "Becker Decl."). The 4
Consent Order would require PG&E to pay $193,715 in penalties and costs within thirty (30) 5 days after the Court's approval of this Application, and such timely payment is a material 6
term and condition of the proposed settlement.
7 8
FACTUAL BACKGROUND 9
A.
Alleged Violations.
10 PG&E owns and operates the Diablo Canyon Power Plant located in Avila Beach, 11 California (the "Plant"). As part of its operations of the Plant, PG&E generates, handles, 12 treats and stores hazardous waste.
Becker Decl. ¶3.
On April 16, 2001, the DTSC HWM~k 13 conducted a physical inspection of the Plant. On or about this time, DTSC also conducted a RIE cA'u 14 review of the Plant's records -relating to financial assurance. Thereafter, the DTSC notified 15 PG&E that it was in violation of Section 25202(a) of the California Health and Safety Code, 16 and various regulations promulgated thereunder, with respect to certain financial assurance 17 and operating issues. Such alleged violations include (i) the failure to establish and maintain 18 financial assurance for the closure of the Plant and for sudden accidental occurrences, and 19 the failure of PG&E to provide notices with respect to the same; (ii) the improper treatment 20 of certain hazardous wastewater, (iii) the failure to keep adequate operating records relating 21
'to the location, shipment, treatment and storage of hazardous waste; (iv) the failure to 22 properly maintain and inspect portions of the secondary containment system; (v) the failure 23 to provide adequate aisle space in certain areas of the Plant; and (vi) the failure to keep 24 containers of hazardous wastes closed. Id. ¶4. While some of ihe alleged violations would 25 have occurred prior to the petition date in this case, other violations would have continued or 26 occurred after such date. The DTSC claims that some of the alleged violations had been in 27 effect since January of 2001 and had continued into November of 2001 PG&E disputes the 28 existence of the violations. Id. ¶5.
EX PARTE APP. FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS WITH DTSC
}
1 B.
Consent Order.
2 Subject to the approval of this Court, PG&E and the DTSC have agreed to a tentative 3
settlement of DTSC's claims as described in detail in the Consent Order.
Under the 4
settlement, PG&E would agree to pay $193,715 in penalties and costs and would agree to a 5
schedule for complying with various regulatory provisions.
The Consent Order would 6
constitute full settlement of the alleged violations. Becker Decl. ¶6.
7 C.
The Consent Order Is In The Best Interest Of The Estate.
8 The DTSC claims that PG&E's actions or failures to act violate Section 25202(a) of the 9
California Health and Safety Code and various regulations promulgated thereunder as well 10 as PG&E's Hazardous Waste Facilities Permit and its Operating Plan for the site.
11 Section 25187 of the California Health and Safety Code provides for the imposition of 12 administrative penalties for such violations. In some cases, a penalty may be imposed for 13 each day that the violation exists. California Code of Regulations, Title 22, §66272.64. In RIE N
14 initial discussions between the parties, the DTSC sought substantially more penalties than 1 5 that provided for in the Consent Order. The DTSC also stated verbally that it believed it was 16 entitled to recover significantly more than the amount requested in such initial discussions.
17 Id. ¶7.
While PG&E would vigorously contest the imposition and amount of penalties 18 sought by the DTSC, the ultimate outcome of an administrative proceeding or civil action 19 regarding this issue is uncertain and, furthermore, PG&E would have to incur substantial 20 litigation costs in defending or challenging the matter. A lawsuit would also consume 21 management resources, diverting those persons from other business of PG&E.
22 For these and other reasons, PG&E believes that the settlement of the DTSC claims in 23 accordance with the Consent Order is in the best interests of PG&E and its estate.
24 25 ARGUMENT 26 A.
The Court Should Approve The Settlement.
27 Bankruptcy Rule 9019(a) empowers a bankruptcy court to approve any settlement or 28 EX PARTE APP. FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS WITH DTSC 1
compromise related to a reorganization or liquidation.' Myers v. Martin (In re Martin), 91 2
F.3d 389, 393 (3d Cir. 1996); Vaughn v. Drexel Burnham Lambert Group, Inc. (In re Drexel 3
Burnham Lambert Group, Inc.), 134 B.R. 499, 505 (Bankr. S.D.N.Y. 1991).
- Indeed, 4
compromises and settlements are a common and favored occurrence in bankruptcy cases 5
because they allow a debtor and its creditors to avoid the financial and other burdens 6
associated with litigation over contentious issues and expedite the administration of the 7
bankruptcy estate. Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v.
8 Anderson, 390 U.S. 414, 424, reh'g denied, 391 U.S. 909 (1968); Martin v. Kane (In re A &
9 C Props.), 784 F.2d 1377, 1380-81 (9th Cir. 1986).
10 In reviewing a proposed settlement, the bankruptcy court's inquiry focuses only upon 11 whether the compromise is fair and equitable and in the best interest of the estate. TMT 12 Trailer, 390 U.S. at 424; A & C Props., 784 F.2d at 1380-81; Nellis v. Shugrue, 165 B.R.
HOVAM 13 115, 121 (S.D.N.Y. 1994). In making this determination, however, the bankruptcy court is NCAmtr 14 not required to conduct a mini-trial on the merits of the underlying dispute or an independent JAU(
z,;-=,.
15 investigation into the reasonableness of the settlement. Port O'Call Inv. Co. v. Blair (In re 16 Blair), 538 F.2d 849, 851 (9th Cir. 1976); see also In re Purofied Down Prods. Corp., 150 17 B.R. 519, 522 (S.D.N.Y. 1993); Drexel Burnham, 134 B.R. at 505.
18 Rather, the standards for such approval have been described as lenient and intended to 19 encourage approval of settlements in bankruptcy cases. See Purofied Down, 150 B.R. at 20 522-23. The bankruptcy court need only canvass the legal and factual issues underpinning 21 the compromise to ensure that the proposed settlement does not fall "'below the lowest point 22 in the range of reasonableness."' Nellis, 165 B.R. at 121-22 (quoting In re W.T. Grant Co.,
23 699 F.2d 599, 608 (2d Cir. 1983)); Purofied Down, 150 B.R. at 522-23; Official Unsecured 24 Creditors' Comm. of Pennsylvania Truck Lines, Inc. v. Pennsylvania Truck Lines, Inc. (In re 25 Pennsylvania Truck Lines, Inc.), 150 B.R. 595, 598 (E.D. Pa. 1992), aff'd mem., 8 F.3d 812 26 1Bankruptcy Rule 9019(a) simply states, in part, that "[o]n motion by the trustee and 27 after notice and a hearing, the court may approve a compromise or settlement." Fed. R.
28 Bankr. P. 9019(a).
EX PARTE APP. FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS WITH DTSC 1
(3d Cir. 1993); Drexel Burnham, 134 B.R. at 505. In making this determination, significant 2
deference may be given to the informed judgment of the debtor in possession and its counsel 3
that a proposed compromise is fair and equitable. Martin, 91 F.3d at 395; Nellis, 165 B.R. at 4
122; Purofied Down, 150 B.R. at 522-23; Drexel Burnham, 134 B.R. at 505.
5 Over the years, four significant criteria have been developed by the courts for 6
consideration in determining whether a proposed settlement falls below the lowest point in 7
the range of reasonableness: (1) the probability of success on the merits; (2) the difficulties, 8
if any, to be encountered in the matter of collection; (3) the complexity of the litigation 9
involved, and the expense, inconvenience and delay necessarily attending it; and (4) the 10 paramount interest of the creditors and a proper deference to their reasonable views. A & C 11 Props., 784 F.2d at 1381; see also Martin, 91 F.3d at 393; Nellis, 165 B.R. at 122; 12 Pennsylvania Truck Lines, 150 B.R. at 598. As demonstrated below, each of the applicable IHOR 13 criteria is satisfied here.2 RKE cGrwu 14
- 1.
The Probability Of Success On The Merits.
15 The Consent Order fully and finally resolves a significant dispute between the Debtor 16 and DTSC without the need for expensive, distracting and time-consuming administrative 17 proceedings or litigation. Although PG&E disputes the DTSC's claims, in the event that any 18 such proceedings were brought, there is no certainty that PG&E would prevail and avoid the 19 imposition of penalties. Furthermore, there is no guarantee that PG&E could avoid the 20 imposition of penalties in excess of the amounts it would be required to pay under the 21 Consent Order.
22
- 2.
The Complexity Of The Litigation, And The Expense, Inconvenience And 23 Delay Attending It.
24 The Consent Order resolves a legal dispute involving numerous claims and 25 complicated factual and legal issues. Accordingly, in agreeing to the Consent Order, the 26 27 2The second factor typically considered by courts-difficulty associated with 28 collection-is not applicable here.
EX PARTE APP. FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS WITH DTSC 1
Debtor has made what it believes is an economically prudent business judgment that the 2
estate's assets are better utilized in facilitating a settlement rather than defending an action 3
brought by the DTSC and prosecuting or defending an appeal of such an action 4
- 3.
The Settlement Is In The Best Interest Of The Creditors.
5 The last criteria considered by bankruptcy courts reviewing a proposed settlement is 6
the paramount interest of creditors, with a deference to their reasonable views.
A & C 7
Props., 784 F.2d at 1381; Drexel Burnham. 134 B.R. at 505-06. While a creditor's objection 8
to a proposed settlement must be considered, it is not controlling and will not bar approval of 9
settlements that "do[] not fall below the lowest point in the range of reasonableness." A & C 10 Props., 784 F.2d at 1382; Drexel Burnham, 134 B.R. at 505.
11 The compromise reached in the Consent Order benefit not only the estate but all 12 creditors. The Consent Order constitutes a settlement in full of the alleged violations, which HOW 13 will preserve estate assets by avoiding further litigation costs and fines which potentially Nc"A'M 14 could exceed the amounts payable under the settlement.
15 B.
The Court Should Allow Payment Of Funds Prior To Plan Confirmation 16 Notwithstanding That Some of DTSC's Claims May Be Pre-Petition Claims.
As discussed above, the DTSC's claims involve both pre-petition and post-petition 17 conduct, and the Consent Order requires the payment of fines promptly following receipt of 18 an order approving this Application.
Thus, it can be argued that, to some degree, this 19 Application seeks authority to pay pre-petition claims prior to the confirmation and 20 implementation of a plan of reorganization in this case. Under the circumstances, however, 21 PG&E believes it is appropriate for the Court to authorize a settlement in this instance.
22 First, the DTSC would not agree to the settlement unless PG&E would agree to pay the 23 fines in a timely manner (1 e., within thirty (30) days) following the Bankruptcy Court's 24 approval of the Consent Order. Without a settlement, the DTSC would likely file a civil 25 action against PG&E in the California Superior Court, which would subject PG&E to risk of 26 a judgment that is materially worse than the proposed settlement provided for in the Consent 27 Order. In addition, PG&E would be required to expend substantial monies in defending 28 EX PARTE APP. FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS WITH DTSC 1
such a lawsuit. While PG&E could argue that any such action by the DTSC would be in 2
violation of the automatic stay (11 U.S.C. §362(a)), the DTSC would likely take the position 3
that the action was exempt from the automatic stay pursuant to Section 362(b)(4) because it 4
is pursuant to a governmental unit's police or regulatory power. (11 U.S.C. §362(b)(4)).
5 Second, if the Consent Order were not approved and DTSC filed a civil action against 6
PG&E, DTSC would argue that, even if it were prevented from imposing and collecting 7
penalties for pre-petition violations, many of the alleged violations involve post-petition 8
violations and that the stay would not apply to prevent DTSC from imposing and collection 9
penalties for such violations. These post-petition penalties could be as much or more than 10 the penalties imposed under the Consent Order.3 Thus, although PG&E could argue that the 11 claims based on pre-petition conduct are stayed and/or not subject to enforcement, 4 it is 12 likely that PG&E would still have to defend and possibly pay penalties (prior to the H*
13 confirmation of a plan) with respect to claims based on post-petition conduct.
RKE omuy 14 In short, absent a prompt payment of penalties by PG&E in accordance with the 15 Consent Order, the DTSC would not agree to a settlement of its claims.
Without a 16 settlement, it is likely that PG&E would be engaged in an extended and expensive litigation, 17 the ultimate result of which could be significantly worse for PG&E than the settlement 18 proposed in the Consent Order. Also, to the extent that the DTSC succeeds in proving post 19 petition violations, PG&E could be forced to pay penalties to DTSC prior to the 20 confirmation of a plan of reorganization in this case. Thus, PG&E believes that it is in the 21 best interest of the estate to agree to the Consent Order and to pay the amounts provided 22 under the Consent Order.
23 Finally, PG&E notes that both of the competing reorganization plans proposed in this 24 25 3The impostion of administrative penalties is subject to many subjective factors that are more art than science. See California Health & Safety Code, §25187; California Code of 26 Regulations, Title 22, §66272.60 et seq.
4Even if the DTSC could bring an action against PG&E for pre-petition conduct under 27 Section 362(b)(4), PG&E would argue that it could not enforce an monetary judgment 28 obtained in such action under such section.
EX PARTE APP. FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS WITH DTSC 1
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10 11 12 13 HOWARD1 PIKE G_2Aw 14 rE1J.K 16 17 18 19 20 21 22 23 24 25 26 27 28 case provide for the payment in full of all pre-petition claims. Therefore, the early payment of the DTSC claim by virtue of the payment of the penalties would not have a material effect on other creditors or the estate.
C.
Payment Of Potential Pre-Petition Claims Pursuant To Consent Judgment Should Be Authorized Pursuant To Section 105 Of The Bankruptcy Code And The Court's Inherent Equitable Powers.
As discussed above, the proposed settlement may be deemed to involve the payment of a pre-petition claim prior to the implementation of a confirmed plan of reorganization in this case. To the extent that Bankruptcy Rule 9109(a) would not authorize such a payment, Section 105(a) of the Bankruptcy Code may be relied on for such authority. Section 105(a) authorizes a bankruptcy court to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." The purpose of Section 105 is "to assure the bankruptcy courts' power to take whatever action is appropriate or necessary in aide of the exercise of their jurisdiction." 2 Lawrence P. King, Collier on Bankruptcy ¶105.01 at 105-6 (15th ed. rev. 2000). For the reason stated above, the proposed settlement embodied in the Consent Order, including the prompt funding of $193,715 in penalties, is in the best interests of the Debtor and its estate. Accordingly, if for,any reason this Court determines that the prompt funding of the $193,715 by PG&E called for pursuant to the Consent Judgment is not authorized pursuant to Bankruptcy Rule 9109(a), PG&E requests that the Court authorize such payment pursuant to the Court's authority and discreti6n under Section 105(a) of the Bankruptcy Code.
EX PARTE APP. FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS WITH DTSC 1
- CONCLUSION 2
The Debtor has carefully considered the risks, complexity and expense associated with 3
further litigation of the disputes between it and the DTSC. In the Debtor's sound business 4
judgment, these factors tip the scale heavily in favor of approval of the proposed Consent 5
Order as fair, reasonable and equitable and in the best interests of the estate and its 6
constituencies. For these reasons, the Debtor respectfully requests that the Court grant this 7
Application and approve the Consent Order in the form attached as Exhibit A to the Becker 8
Declaration.
9 DATED:
2003.
10 11 Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, 12 FALK & RABKIN D13 A Professional Corporation T IENU4m CANE* 14 By:
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15 f
Attornems or D or and Debtor in Possession 16 PACIFIC GAS AND ELECTRIC COMPANY 17 18 THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS HAS NO OBJECTION TO THE FOREGOING APPLICATION AND THE RELIEF REQUESTED THEREIN.
19 20 21 MILBANK, TWEED, HADLEY & McCLOY LLP 22 23 Attorneys for OFFICIAL COMMITTEE OF 24 UNSECURED CREDITORS 25 WD 02 1303/1-1 4 19925/10493071v4 26 27 28 EX PARTE APP. FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS WITH DTSC 1
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10 11 12 HcAtD 13 Si14 AAO,,W,
15 16 17 18 19 20 21 22 23 24 25 26 27 28 CONCLUSION The Debtor has carefully considered the risks, complexity and expense associated with further litigation of the disputes between it and the DTSC. In the Debtor's sound business judgment, these factors tip the scale heavily in favor of approval of the proposed Consent Order as fair, reasonable and equitable and in the best interests of the estate and its constituencies. For these reasons, the Debtor respectfully requests that the Court grant this Application and approve the Consent Order in the form attached as Exhibit A to the Becker Declaration.
DATED:
,2003.
Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation By:
JbIFFEY L. SCHAFFER Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS HAS NO OBJECTION TO THE FOREGOING APPLICATION AND THE RELIEF REQUESTED THEREIN.
MILBANK, TWEED, HADLEY & McCLOY LLP Attorneys for OFFICIAL COMMITTEE OF UNSECURED CREDITORS WD 02 1303/1-1419925o1049307/v4 EX PARTE APP. FOR ORDER AUTHORIZING COMPROMISE OF CLAIMS WITH DTSC