In re PG&e Corp.

• Decision Date: 30 December 2019
• Docket Number: Bankruptcy Case No. 19-30088-DM Jointly Administered
• Citation: 610 B.R. 308
• Court: U.S. Bankruptcy Court — Northern District of California
• Parties: IN RE: PG&E CORPORATION, and Pacific Gas and Electric Company, Debtors. Affects both Debtors * All papers shall be filed in the Lead Case, No. 19-30088 (DM).

610 B.R. 308

IN RE: PG&E CORPORATION, and Pacific Gas and Electric Company, Debtors. Affects both Debtors * All papers shall be filed in the Lead Case, No. 19-30088 (DM).

Bankruptcy Case No. 19-30088-DM Jointly Administered

United States Bankruptcy Court, N.D. California.

Date: December 11, 2019

Signed December 30, 2019

Peter J. Benvenutti, Tobias S. Keller, Jane Kim, Dara Levinson Silveira, Thomas B. Rupp, Keller & Benvenutti LLP, San Francisco, CA, Kevin Bostel, Jared R. Friedmann, Andriana Georgallas, Stuart J. Goldring, Matthew Goren, Stephen Karotkin, Kevin Kramer, Jessica Liou, John Nolan, Ray C. Schrock, Richard W. Slack, Theodore Tsekerides, Weil, Gotshal & Manges LLP, Timothy G. Cameron, David A. Herman, Omid H. Nasab, Kevin J. Orsini, Paul H. Zumbro, Cravath, Swaine & Moore LLP, New York, NY, Katherine Kohn, David Levine, Groom Law Group, Chartered, Washington, DC, Bradley R. Schneider, Munger Tolles and Olson LLP, Los Angeles, CA, for Debtors.

MEMORANDUM DECISION REGARDING POSTPETITION INTEREST

DENNIS MONTALI, U.S. Bankruptcy Judge

I. INTRODUCTION

On December 11, 2019, the court heard oral argument on the discrete legal issue of the applicable postpetition interest to be paid to four classes of allowed unsecured and unimpaired claims, under any chapter 11 reorganization plan for solvent debtors PG&E Corporation and Pacific Gas and Electric Company ("Debtors"). The Debtors, joined by certain Shareholders, argue that creditors in all four classes should receive interest calculated pursuant to 28 U.S.C. § 1961(a) (the "Federal Interest Rate") in effect as of the petition date (January 29, 2019) these chapter 11 cases. That rate for these jointly administered cases is 2.59 percent. Debtors contend that use of the Federal Interest Rate is consistent with In re Cardelucci , 285 F.3d 1231 (9th Cir. 2002) (" Cardelucci" ), which holds that unsecured creditors in a solvent case should receive postpetition interest calculated at the Federal Interest Rate.

Several parties, including the Official Committee of Unsecured Creditors, the Ad Hoc Committee of Senior Unsecured Noteholders, the Ad Hoc Committee of Holders of Trade Claims and others (collectively "Unsecured Creditors") oppose the motion. They urge application of various rates, generally determined by applicable contracts between the Debtors and the respective claimants, judgment rates or some other rate.

For the following reasons, the court concludes that the Debtors are correct, that Cardelucci controls and that the Federal Interest Rate applies to any Plan.

II. APPLICABLE LAW

Statutory construction of the Bankruptcy Code¹ is "a holistic endeavor" requiring consideration of the entire statutory scheme. United Sav. Ass'n of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988), cited by In re BCE West, L.P. , 319 F.3d 1166, 1171 (9th Cir. 2003).

In Timbers , the Supreme Court utilized this holistic approach to analyze five seemingly unconnected provisions of Title 11 in determining that oversecured creditors are entitled to receive postpetition interest. Applying a similar holistic approach, this court has looked to the structure of the Bankruptcy Code and the purposes behind its many parts to conclude while unsecured creditors are entitled to postpetition interest in a solvent estate, the Bankruptcy Code requires application of the Federal Interest Rate to those claims and that such an application does not impair these claims. Even if Cardelucci were not binding, the court would reach the same conclusion.

Chapter 5, subchapter I ("Creditors and Claims") of the Bankruptcy Code sets forth the guiding principles for filing and allowance of claims or interests, administrative expenses, determination of secured status and other provisions not important to the current analysis. In contrast, the court must apply the critical provisions of chapter 11, subchapter II ("The Plan"). Section 1123(a) states what a plan "shall" do or include. Section 1123(b) states what a plan "may" do or include. As a definitional matter, section 1124 explains that a class of claims or interest is impaired unless the plan leaves certain legal, equitable and contractual rights unaltered (§ 1124(1)), or cures, restates, or compensates the rights of class or interest members (§ 1124(2)(A)-(E)).

The structure of the Bankruptcy Code and the applicability of these definitional and empowering sections, therefore, dictate rights that are fixed as of the petition date and what rules apply after that. Nothing suggests that, absent specific rules, provisions dealing with prepetition entitlements carry over postpetition. For example, section 502(b)(2) clearly provides that a claim for "unmatured interest"² may not be allowed. An exception to the rule is found in section 506(b) that permits accrued interest to be allowed as long as the security is "greater than the amount of such claim."

The Unsecured Creditors' argument that somehow the definitions and remedies found in section 1124 override the plain impact of section 502(b)(2) is simply not persuasive and would require the court to ignore not only the plain words of the statute but also the holistic notion of treating them as part of a combined comprehensive instrument of definitions, applicability and implementation. Section 1124(1) describes what claims are unimpaired and section 1124(2) describes what is necessary for a plan to "unimpair" impaired claims. In contrast, chapter 5 ("Creditors and Claims") dictates how claims and interests are dealt with in the substantive chapters: 7, 11, 12 and 13. The subparts of section 502(b) list nine specific rules for affecting allowed claims.

An example not directly related to this case proves the point. Section 502(b)(4) disallows the claim of an insider or an attorney to the extent it exceeds the reasonable value of the services. Unsecured Creditors could not persuade the court or even make a convincing argument that somehow an insider or an attorney whose asserted claim exceeds a reasonable value could take refuge in section 1124((1)'s definitional provision and escape the clear intention of Congress to limit unreasonable claims for services in the same manner it has limited postpetition unsecured claims for unmatured interest. For the same reason, underlying non-bankruptcy law must give way to contrary provisions of the Bankruptcy Code. Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 444, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007) (quoting Raleigh v. Illinois Dept. of Revenue , 530 U.S. 15, 20, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000).

With that background, the court turns to the applicability of Cardelucci and its clear message.

III. THIS COURT'S RESPONSIBILITY UNDER STARE DECISIS

This court is bound by the Ninth Circuit's Cardelucci decision unless it can be distinguished or overruled:

Courts are bound by the decisions of higher courts under the principle of stare decisis . The doctrine derives from the maxim of the common law, "Stare decisis et non quieta movere," which literally means, "Let stand what is decided, and do not disturb what is settled." See 1B Jeremy C. Moore et al., Moore's Federal Practice ¶ 0.402[1] (2d ed. 1992). Moore's treatise describes the rule as follows:

The rule, as developed in the English law, is that a decision on an issue of law embodied in a final judgment is binding on the court that decided it and such other courts as owe obedience to its decisions, in all future cases. Id.

Under this principle a decision of a circuit court of appeal is binding on all lower courts in the circuit, including district courts and bankruptcy courts (absent a contrary United States Supreme Court decision). Zuniga v. United Can Co. , 812 F.2d 443, 450 (9th Cir. 1987).

This is true even if there is a split of opinion between the controlling circuit and another circuit court of appeals, and the lower court believes that the controlling circuit court is in error. Zuniga , 812 F.2d at 450 ; Hasbrouck v. Texaco, Inc. , 663 F.2d 930, 933 (9th Cir. 1981) [.]

In re Globe Illumination Co., 149 B.R. 614, 617 (Bankr. C.D. Cal. 1993) (multiple internal citations omitted).

Cardelucci is a published panel opinion by the Court of Appeals for the Ninth Circuit. It is binding on this court. State Farm Fire & Cas. Ins. Co. v. GP West, Inc., 190 F. Supp.3d 1003, 1018 (D. Haw. 2016) (citation and internal quotation marks omitted). See Lair v. Bullock , 798 F.3d 736, 747 (9th Cir. 2015) ("[W]e are bound by a prior three-judge panel's published opinions, ....") (citing Miller v. Gammie , 335 F.3d 889, 892–93 (9th Cir. 2003) (en banc)).

IV. THE HOLDING OF CARDELUCCI

In Cardelucci , the Ninth Circuit framed the issue before it as follows:

This appeal presents the narrow but important issue of whether such post-petition interest is to be calculated using the (federal judgment rate) or is determined by the parties' contract or state law.

Cardelucci, 285 F.3d at 1231.

The Ninth Circuit held that in chapter 11 cases involving solvent debtors, unsecured creditors are entitled to postpetition interest at the federal judgment rate, not at not at contractual or state statutory rates. Id. at 1234. In so holding, the Ninth Circuit observed that application of the lower federal judgment rate did not violate an unsecured creditor's substantive due process rights ( id. at 1236 ) and that utilization of federal judgment rate for all claims was rationally related to legitimate interests in efficiency, fairness, predictability, and uniformity within bankruptcy system. Id.

While the court pinpointed a "narrow but important issue," it did not narrow the application of its holding, which must be applied broadly given the structure of the Bankruptcy Code and the clear and plain meaning of its applicable provisions, as noted above.

In Cardelucci , the debtor and his opponents, holders of a state court judgment, set aside various differences and thereby permitted confirmation...