ML032541197

Ex-Parte Application for Order Authorizing Settlement and Withdrawal of Claim of Laguna Irrigation District and Memorandum of Points and Authorities in Support Thereof (Declaration of David E. Rubin in Support of Application Filed Separatel

ML032541197
Person / Time
Site:	Diablo Canyon
Issue date:	09/05/2003
From:	Ball L Milbank, Tweed, Hadley & McCloy, LLP, Official Committee of Unsecured Creditors
To:	Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California
References
01-30923 DM, 94-0742640
Download: ML032541197 (7)

Text

I JAMES L. LOPES (No. 63678)

JANET A. NEXON (No. 104747 2 BARBARA GORDON (NO.52424)

HOWARD, RICE, NEMEROVSKI, CANADY, 3 FALK & RABKIN A Professional Corporation 4 Three Embarcadero Center, 7th Floor San Francisco, California 94111-4024 '50-1-13 5 Telephone: 415/434-1600 3;.,b Facsimile: 415/217-5910 6

Attorneys for Debtor and Debtor in Possession 7 PACIFIC GAS AND ELECTRIC COMPANY 8

UNITED STATES BANKRUPTCY COURT 9

NORTHERN DISTRICT OF CALIFORNIA 10 SAN FRANCISCO DIVISION 11 In re Case No. 01-30923 DM 12 PACIFIC GAS AND ELECTRIC Chapter 11 Case wwD 13 COMPANY, a California corporation,

[No Hearing Scheduled]

cow 14 Debtor.

I FRAWIN

^ - 15 Federal I.D. No. 94-0742640 16 17 EX PARTE APPLICATION FOR ORDER AUTHORIZING 18 SETTLEMENT AND WITHDRAWAL OF CLAIM OF LAGUNA IRRIGATION DISTRICT AND MEMORANDUM OF POINTS AND 19 AUTHORITIES IN SUPPORT THEREOF 20 [DECLARATION OF DAVID E. RUBIN IN SUPPORT OF APPLICATION FILED SEPARATELY]

21 22 23 24 25 26 27 28 69k2-9'k EX PARTE APPLI. FOR ORDER AUTHOR. SETTLEMENT WITH LAGUNA IRRIG. AND MPA

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1 Pacific Gas and Electric Company ("PG&E"), the debtor and debtor in possession 2 in the above-captioned Chapter 11 case, hereby applies to this Court for approval of a 3 settlement (the "Settlement") with Laguna Irrigation District ("Laguna") of civil actions 4 filed by and against PG&E and withdrawal of all claims filed by Laguna in this Chapter 11 5 case, as explained in more detail below. The terms of the Settlement are described herein 6 and in the Declaration of David E. Rubin in Support of PG&E's Ex Parte Application for 7 Order Authorizing Settlement and Withdrawal of Claim of Laguna Irfigation District and 8 Memorandum of Points and Authorities in Support Thereof, filed concurrently herewith.

9 The Settlement provides for resolution of (a) Laguna's antitrust action against 10 PG&E (Laguna Irrigation District v. PG&E, United States District Court for the Eastern 11 District of California Case No. CIVF-00 5967 AWI SMS); (b) Laguna's eminent domain 12 action against PG&E (Laguna Irrigation District v. PG&E, Kings County Superior Court Fewu 13 Case No. 99C0952); and (c) PG&E's breach of contract action against Laguna (PG&E v.

cog 14 Laguna Irrigation District, San Francisco Superior Court Case No. CGC-02406259)

'15 (collectively, the "Litigation"). Under the Settlement, among other terms, the parties shall 16 dismiss their respective lawsuits, Laguna shall pay PG&E up to $1 million, and Laguna shall 17 withdraw all Claims.

18 This Application is brought pursuant to Rule 9019 of the Federal Rules of 19 Bankruptcy Procedure and is based on the grounds that the proposed Settlement is fair and 20 equitable and in the best interests of the bankruptcy estate. In light of(1) the terms of the 21 Settlement requiring prompt approval, (2) the noticing of this Application to the United 22 States Trustee and the Official Committee of Unsecured Creditors (the "Committee"), and 23 (3) the Committee's pre-review of this Application and its signature below evidencing that it 24 has no objection to the granting of the relief requested, this Application is being submitted, 25 ex parte, without scheduling a hearing. PG&E submits that there has been sufficient notice 26 and opportunity for a hearing as is appropriate under the particular circumstances.

27 28 EX PARTE APPLI. FOR ORDER AUTHOR. SETTLEMENT WITH LAGUNA IRRIG. AND MPA 1 MEMORANDUM OF POINTS AND AUTHORITEES 2 PG&E seeks Court approval of the proposed Settlement described in the 3 Settlement Agreement attached as Exhibit A to the Declaration of David E. Rubin ("Rubin 4 Declaration"), which provides among other things for the release of all Claims by Laguna, 5 the payment of up to $1 million to PG&E, and dismissal of the Litigation between Laguna 6 and PG&E.

7 I.

8 FACTUAL BACKGROUND' 9 The following is a summary of the events leading up to the Litigation and the 10 terms of the Settlement and is only intended as a brief overview of relevant facts.

11 A. Statement of Facts.

12 Commencing in 1996, Laguna sought to become a public power enterprise by (a)

D 13 contracting with Power Exchange Corporation ("PXC") to utilize PXC's Control Area 14 Transmission Service Agreement and installing service drops from PG&E's distribution fdRAWN 15 lines to selected customers (the "Service Drop Plan"), (b). suing PG&E in eminent domain to 16 condemn certain of PG&E's electric distribution facilities and (c) entering into an Energy 17 Service Provider Service Agreement ("ESP Agreement") with PG&E to permit Laguna to 18 sell power to Direct Access customers. PG&E questioned the legality of Laguna's Service 19 Drop Plan, and refused to proceed with Laguna's interconnection request pending the 20 resolution of the objections that PG&E filed with the Federal Energy Regulatory 21 Commission ("FERC"). Laguna subsequently sued PG&E in Fresno Federal District Court 22 for alleged antitrust and tortious conduct (the "Antitrust Case").

23 In 1997, as an alternative means to becoming a public power enterprise, Laguna 24 resolved to condemn certain PG&E electric distribution facilities within the District's 25 borders, and filed an action in eminent domain against PG&E in 1999 (the "Condemnation 26 27 'The evidentiary basis and support for the facts set forth in this Application are 28 contained in the Declaration of David E. Rubin filed concurrently herewith.

EX PARTE APPLI. FOR ORDER AUTHOR. SETTLEMENT WITH LAGUNA IRRIG. AND MPA 1 Case"). Laguna amended its complaint in 2000 in an effort to condemn all the PG&E 2 distribution facilities within the District and some outside it.

3 In 1998, as another means of becoming a public power enterprise, Laguna 4 entered into an ESP Agreement with PG&E, by which it agreed to, among other things, (a) 5 generate, purchase, or otherwise procure power for its Direct Access customers, and (b) 6 obtain a Scheduling Coordinator to schedule that Direct Access load with the Independent 7 System Operator ('ISO"). In 2002, PG&E filed suit against Laguna, alleging that Laguna 8 breached the parties' ESP Agreement by, among other things, failing to pay for power and/or 9 schedule load with the ISO (the "ESP Case").

10 B. Status of the Litigation.

11 In mid-2002, PG&E and Laguna agreed to stay the Litigation while they 12 negotiated a global settlement. All three cases remain stayed.

HowAPfl 13 C. The Settlement.

cog 14 Laguna, having spent more than five years and significant financial and other 8 RAWl2N 15 resources attempting to become a public power enterprise, now wishes to restore its fiscal 16 health, exit the electric business, and refocus its efforts on its water enterprise.

17 Both Laguna and PG&E seek to eliminate the risk of potential liability associated 18 with the Litigation and minimize the substantial legal and consulting costs that would be 19 necessarily associated with litigating these cases. The principal terms of the Settlement 20 provide for dismissal of the Litigation and the withdrawal of all claims by Laguna. Laguna 21 shall pay up to $1 million to PG&E over the next 20 years by payment of $50,000 per year; 22 however, PG&E will forego the last ten scheduled payments provided Laguna, among other 23 things, timely makes the first ten payments (totaling $500,000) and refrains from adopting a 24 Resolution of Necessity to condemn any PG&E property (except for rights-of-way necessary 25 for irrigation facilities) during that time.

26 27 28 EX PARTE APPLI. FOR ORDER AUTHOR. SETTLEMENT WITH LAGUNA IRRIG. AND MPA 1 :II.

2 THE SETTLEMENT IS FAIR AND EQUITABLE AND IN THE BEST INTERESTS OF TIE ESTATE 3

"The law favors compromise and not litigation for its own sake...." Martin v.

4 Kane (In re A&C Properties) 784 F.2d 1377, 1381 (9th Cir. 1986). Bankruptcy courts have 5

great latitude in approving compromise agreements that are "fair and equitable." Woodson 6

v. Fireman's Fund Ins. Co. (In re Woodson), 839 F.2d 610, 620 (9th Cir. 1988). In passing 7

on a proposed compromise, courts consider the following factors:

8 (a) The probability of success in the litigation; (b) the difficulties, if 9 any to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay 10 necessariy attending it; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises. (A&C 11 Properties, 784 F.2d at 1381 (citation omitted))

12 Bankruptcy courts "weigh certain factors to determine whether the compromise is

,VWMD RCE 13 in the best interest of the bankrupt estate." Id. at 1382. Each of the A&C coAf' 14 Properties factors weighs in favor of the Settlement, as demonstrated below.

A 0 2"- 15 A. The Probability of Success.

i6 Risk is inherent in litigation and there is substantial money at stake in the three 17 cases at issue here. Moreover, regardless of which side prevails in each of the three cases, 18 PG&E would necessarily incur substantial attorneys' fees to bring these cases to trial, as 19 well as to prosecute possible appeals. Moreover, PG&E would need to dedicate significant 20 time and resources to this Litigation. Given these risks, along with the time and expense 21 involved with preparing the cases for trial and conducting those trials, PG&E believes that 22 the Settlement is favorable and should be approved.

23 B. The Settlement Benefits the Creditors.

24 Avoidance of unnecessary litigation will benefit PG&E's creditors by eliminating 25 costs and delay, and instead allowing PG&E's personnel to focus on more critical functions.

26 Moreover, the Settlement will eliminate any risk that PG&E will have to pay any money to 27 Laguna in that it provides for the withdrawal of all claims of Laguna against PG&E. Finally, 28 EX PARTE APPLI. FOR ORDER AUTHOR. SETTLEMENT WITH LAGUNA IRRIG. AND MPA 1 the Settlement provides a substantial benefit to the estate by eliminating potential liability 2 with the dismissal of the Litigation with prejudice.

3 4

5 CONCLUSION 6 Based on all of the factors discussed above, the Settlement is fair and equitable 7 and in the best interests of the estate.

8 For all of the foregoing reasons, PG&E respectfully requests that this Court make 9 and enter its order granting the Application, authorizing PG&E to enter into and 10 consummate the Settlement.

11 DATED , 2003 12 Respectfully, Hmap 13 HOWARD, RICE, NEMEROVSKI, CANADY, cAo MaMOM 14 FALK & RABKIN A Professional Corporation

• RABKIN I

' 15 By:

16 BARBARA GORDON 17 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY 18

• 19 THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS DOES NOT OBJECT TO 20 THE FOREGOING APPLICATION OR THE RELIEF REQUESTED THEREIN:

21 MILBANK, TWEED, HADLEY & McCLOY 22 23 DATED: August_2003 By:

2403 By: LORIE A. BALL 24 Attorneys for OFFICIAL COMMITTEE OF 25 UNSECURED CREDITORS 26 27 28 WD 0718031-1419913/1090770/1v EX PARTE APPLI. FOR ORDER AUTHOR SETTLEMENT WITH LAGUNA IRRIG. AND MPA 1 the Settlement provides a substantial benefit to the estate by eliminating potential liability 2 with the dismissal of the Litigation with prejudice.

3 4

5 CONCLUSION 6 Based on all of the factors discussed above, the Settlement is fair and equitable 7 and in the best interests of the estate.

8 For all of the foregoing reasons, PG&E respectfully requests that this Court make 9 and enter its order granting the Application, authorizing PG&E to enter into and 10 consummate the Settlement.

11 DATED: August__ 2003 12 Respectfully, HmaD 13 HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN TVIX 14 A Professional Corporation

=-7 15 By.

16 BARBARA GORDON 17 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY 18 19 THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS DOES NOT OBJECT TO 20 THE FOREGOING APPLICATION OR THE RELIEF REQUESTED THEREIN:

21 MILBANK, TWEED, HADLEY & McCLOY 22 23 DATED: tl, 2003 __

LORIE A. BALL 24 Attorneys for OFFICIAL COMMITTEE OF 25 UNSECURED CREDITORS 26 27 28 WD 071303/1-14199131090770/vi EX PARTE APPLI. FOR ORDER AUTHOR. SETTLEMENT WITH LAGUNA IRRIG. AND MPA

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