Pacific Gas and Elec. Co. v. California
| Decision Date | 19 November 2003 |
| Docket Number | No. 02-80113.,No. 02-16990.,02-16990.,02-80113. |
| Court | U.S. Court of Appeals — Ninth Circuit |
| Parties | PACIFIC GAS AND ELECTRIC COMPANY, a California corporation; PG & E Corporation, Plaintiffs-Appellees, v. People of the State of CALIFORNIA, ex. rel. CALIFORNIA DEPT OF TOXIC SUBSTANCES CONTROL, Central Coast Regional Water Quality Control Board, Colorado River Basin Regional Water Quality Control Board, State Water Resources Control Board, Lahontan Regional Water Quality Board, Central Valley Regional Water Quality Control Board, San Francisco Bay Regional Water Quality Control Board, North Coast Regional Quality Control Board, California Dept Fish and Game, California Dept of Forestry and Fire Protection, California Dept Water Resources, California Environmental Protection Agency, California Highway Patrol, California Dept of Education, Bay Conservation Development Commission, Resources Agency, State Lands Commission, California Dept of Parks and Recreation, California Dept General Services, California Coastal Commission; People of the State of California, ex. rel. California Dept Transportation; City and County of San Francisco; California Hydropower Reform Coalition; California Public Utilities Commission, Defendants-Appellants, and City of Redwood City; California Counties of Alameda, Fresno, Kern, Sacramento, San Luis Obispo, Santa Barbara, Santa Clara, Siskiyou, Sonoma, and the City and County of San Francisco; United States of America, on behalf of the U.S. Environmental Protection Agency; Official Committee of Unsecured Creditors, Defendants. People of the State of California, ex. rel. California Dept Transportation; City and County of San Francisco; California Hydropower Reform Coalition; California Public Utilities Commission, Petitioners, v. Pacific Gas and Electric Company, a California corporation, Respondent. |
California; Laurence H. Tribe, Harvard University Law School, Cambridge, Massachusetts; Michael Kessler, Weil, Gotshall and Manges, New York, New York; Alan Shore Gover, Dewey Ballantine, Houston, Texas, Stephen L. Johnson, United States Department of Justice, San Francisco, California, for plaintiff-appellee/respondent Pacific Gas and Electric.
Thomas Greene, Margarita Padilla, Office of the Attorney General, Oakland, California; Steven H. Felderstein, Paul J. Pascuzzi, Felderstein Fitzgerald Willoughby, Sacramento, California; Bruce A. Behrens, California Department of Transportation, San Francisco, California; Theresa L. Mueller, D. Cameron Baker, San Francisco City Attorney's Office, San Francisco, California; Richard Roos-Collins, Natural Heritage Institute, Berkeley, California; Charlton H. Bonham, Trout Unlimited, Albany, California; Alan W. Kornberg, Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York; Arocles Aguilar, Gary M. Cohen, Public Utilities Commission of the State of California, San Francisco, California, for defendants-appellants/petitioners State of California, et al.
Robert D. McCallum, Jr., Assistant Attorney General, Kevin V. Ryan, United States Attorney, William Kanter, Jeffrey Clair (argued), U.S. Department of Justice, Civil Division, Appellate Staff, Washington, DC, Jonathan V. Holtzman, Renne & Holtzman, San Francisco, California; Mary H. Williams, State of Oregon Justice Department, Salem, Oregon, for amici curiae.
Appeal from the United States District Court for the Northern District of California; Vaughn R. Walker, District Judge, Presiding.
Before: MICHAEL DALY HAWKINS, WILLIAM A. FLETCHER, Circuit Judges, and SAMUEL P. KING,* Senior Judge.
The issue presented in this interlocutory appeal is the extent to which a reorganization plan proposed under 11 U.S.C. § 1123(a)(5) preempts otherwise applicable nonbankruptcy law. Section 1123(a) was enacted as part of the Bankruptcy Code in 1978. That section specifies what must be included in a reorganization plan under Chapter 11 and closely parallels § 216(10) of the predecessor Bankruptcy Act. Section 1123(a)(5) provides, in part, "[n]otwithstanding any otherwise applicable nonbankruptcy law a [reorganization] plan shall ... provide adequate means for the plan's implementation[.]" When § 1123(a) was originally enacted in 1978, it did not contain the clause "notwithstanding any otherwise applicable nonbankruptcy law," just as § 216(10) of the Bankruptcy Act contained no such clause. The "notwithstanding" clause was added to § 1123(a) by amendment in 1984.
Section 1142(a) was also enacted as part of the Bankruptcy Code in 1978. That section prescribes duties associated with the implementation of an approved reorganization plan under Chapter 11 and closely parallels § 224(2) of the predecessor Bankruptcy Act. Section 1142(a) provides, "[n]otwithstanding any otherwise applicable nonbankruptcy law, rule, or regulation relating to financial condition, the debtor and any entity organized or to be organized for the purpose of carrying out the plan shall carry out the [reorganization] plan and shall comply with any orders of the court." The only relevant difference between § 1142(a) and its predecessor § 224(2) is that the clause "notwithstanding any otherwise applicable non-bankruptcy law, rule, or regulation relating to financial condition" was added in 1978.
We hold that a reorganization plan proposed under § 1123(a)(5) expressly preempts otherwise applicable non-bankruptcy laws only to the extent that such laws were already preempted before the addition of the "notwithstanding" clause to § 1123(a) by amendment in 1984. That is, we hold that the addition of the "notwithstanding" clause to § 1123(a) was merely a clarification and confirmation of the preemptive effect of a reorganization plan that already existed under the 1978 Bankruptcy Code. That preemptive effect, expressly stated in the "notwithstanding" clause of § 1142(a), was limited to otherwise applicable nonbankruptcy laws "relating to financial condition."
We reverse the decision of the district court and remand for further proceedings.
Appellee Pacific Gas & Electric Company ("PG & E") is a large, vertically-integrated public utility in California, currently subject to regulation by various federal, state, and local entities. PG & E owns and operates electric generation facilities, electric and gas transmission facilities, and retail distribution facilities. On April 6, 2001, PG & E filed a voluntary petition under Chapter 11 of the Bankruptcy Code. On December 19, 2001, PG & E and its corporate parent PG & E Corporation ("Proponents") filed a First Amended Reorganization Plan ("Plan") accompanied by a First Amended Disclosure Statement. The Plan has since been amended, but the amendments do not affect our legal analysis.
Among other things, the Plan contains a proposal for the disaggregation of PG & E into four new corporations, each of which would be owned by PG & E's parent corporation. The four proposed corporations are: (1) Electric Generation LLC ("Gen"), which would own PG & E's generation assets; (2) ETrans LLC ("ETrans"), which would own PG & E's electric transmission assets; (3) GTrans LLC ("GTrans"), which would own PG & E's gas transmission assets; and (4) Reorganized PG & E, which would engage in retail distribution of electricity and gas. Pursuant to the Plan, Reorganized PG & E would remain subject to regulation by the California Public Utility Commission ("CPUC") after the proposed disaggregation. However, Gen, ETrans, and GTrans would not. Rather, they would be subject to the exclusive regulatory jurisdiction of the Federal Energy Regulatory Commission. If PG & E is not disaggregated, all of PG & E would remain subject to regulation by the CPUC.
The Disclosure Statement filed in conjunction with the Plan makes clear the extremely broad preemptive effect PG & E attributes to the "notwithstanding" clause of § 1123(a). Section 1123(a)(5) provides, in part, "[n]otwithstanding any otherwise applicable non-bankruptcy law, a [reorganization] plan shall ... provide adequate means for the plan's implementation[.]" In accordance with Proponents' reading of § 1123(a)(5), the Disclosure Statement ("Statement") describes the means proposed for implementing the Plan, and states that the Plan preempts various state and local laws:
Section 1123(a) of the Bankruptcy Code preempts any otherwise applicable non-bankruptcy law that may be contrary to its provisions. Accordingly, a plan may contain certain provisions that would not normally be permitted under non-bankruptcy law. For example, section 1123(a)(5) of the Bankruptcy Code authorizes, among other things, the sale or transfer of assets by the Debtor without the consent of the State or the California Public Utilities Commission (the "CPUC").
* * *
[S]ection 1123(a) of the Bankruptcy Code preempts state regulation from interfering with the implementation and consummation of the Plan. Accordingly, the Proponents contend that the Confirmation Order approving the Plan and authorizing the transactions pursuant to the Plan will preempt "otherwise applicable nonbankruptcy law" in the following areas: (1) any approval or authorization of the CPUC or compliance with the California Public Utilities Code or CPUC rules, regulations or decisions otherwise required to transfer public utility property (including authorization to construct facilities), issue securities and implement the Plan; and (2) the exercise of discretion by any other state or local agency or subdivision to deny the transfer or assignment of any of the Debtor's property, including existing permits or licenses, or the issuance of identical permits and licenses on the same terms and conditions as the Debtor's...
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