Appellate Court Hears PG&E Upstreaming Arguments

The three-year-old suit seeking up to $5 billion from Pacific Gas & Electric on grounds it fraudulently sent its parent company billions of dollars in precrisis profit has resurfaced. The Ninth Circuit Court of Appeals heard oral arguments February 18 on whether the multibillion-dollar restitution claim should be decided in state court?as urged by the attorney general?or whether it is exclusively a federal bankruptcy court matter?as urged by PG&E Corp. At least one of the three circuit judges apparently favors the state?s position, also argued by the city of San Francisco. The court hearing was in response to an appeal by the attorney general and San Francisco after federal district court judge Vaughn Walker split their consolidated suits in two. The bifurcation of the penalties and restitution claim makes for a very convoluted case procedurally. ?It makes one strange animal,? said deputy San Francisco city attorney Theresa Mueller. Walker sent the restitution claim to bankruptcy court, putting the matter in limbo because it?s very unlikely the utility would go after PG&E Corp. The utility released its parent from all claims during the crisis, and that agreement was incorporated into the approved bankruptcy settlement. The state?s and San Francisco?s arguments are based on state police and regulatory powers, which, they assert, bar disposition of the matter in bankruptcy court. In addition, they argued, the recovery claim is not owned by the utility?and thus it?s not part of PG&E?s estate. PG&E Corp. asserted that any potential restitution is the sole property of its bankruptcy estate. ?The restitution claim is for recovery of the money owed to the utility,? said PG&E attorney Michael Kessler. ?The claim is owned by the utility under Section 541 of the bankruptcy code.? Kessler, with Weil, Gotshal & Nagles in New York, added that if the claim is deemed part of the bankruptcy estate, then the former release would apply. The court focused on the goal of restitution under California Business and Professions Code Section 17200, and on who would get the money if financial recovery were granted. The fundamental question of liability had yet to be decided, according to Deputy Attorney General Danette Valdez. ?We have not recovered anything, so we don?t know what it?s going to look like,? she said. Valdez added that any recovered funds could be refunded to ratepayers or taxpayers down the road via a constructive trust or another mechanism. In September 2003, Walker ruled that the attorney general?s and San Francisco?s penalties claim under California?s unfair competition statute was a state matter but that the restitution claim belonged on bankruptcy court turf. He overturned bankruptcy court judge Dennis Montali?s ruling that allowed the state court to determine who claims any recovery of the money the utility sent to PG&E Corp. from 1997 to 2000. Last week, the Superior Court of San Francisco, which will determine the penalties claims, issued a tentative ruling that reduced the number of alleged violations. Superior Court judge Richard Kramer is expected to hold a status conference in March. Court Dockets 03-17051, 03-16976

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Appellate Court Hears PG&E Upstreaming Arguments

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