Opinion
Bankruptcy Case No. 01-30923DM
February 6, 2003
MEMORANDUM DECISION REGARDING EXTENSION OF PLAN EXCLUSIVITY AND RESOLICITATION OF PREFERENCES
I. Introduction
On November 7, 2002, the Official Committee of Unsecured Creditors ("Committee") and the California Public Utilities Commission ("CPUC") filed their Joint Motion Of The [Committee] And The [CPUC] For An Order Approving (1) Procedures For Resolicitation Of Preferences Concerning Competing Plans Of Reorganization For The Debtor, (2) Supplemental Disclosures In Connection Therewith, And (3) Proposed Form Of Ballot (the "Preferences Motion"). Pacific Gas and Electric Company ("Debtor") opposed the Preferences Motion and a hearing was held on November 27, 2002. After hearing the arguments of the Committee, the CPUC and the Debtor, as well as other interested parties, the court invited counsel to consider a procedure for seeking the preferences of creditors regarding the competing plans of reorganization. At a hearing on January 16, 2003, counsel for Debtor advised that he saw no practical way to shorten the estimate of seventy days to solicit the preferences of all creditors except to shorten to fewer than thirty days the time individual classes would have to express their preferences. He explained that while that might be reasonable as to classes with relatively small numbers of creditors, the larger classes would present practical problems. Counsel for the CPUC stated that the confirmation trial was taking a long time and noted that it might be premature (as of that date) to initiate a preference solicitation. Counsel for the Committee observed that the only solution he could see to this problem was to shorten the time class members would have to submit their preference.
At the conclusion of the hearing the court invited all three counsel to continue to discuss possible procedures but also indicated that it might address the issue itself. Not surprisingly, no new suggestion how to go about soliciting preferences has been presented. Given the fact that the confirmation trial will resume next week, the court has decided to dispose of the Preferences Motion.
On December 20, 2002, Debtor filed its Motion For Order Further Extending Exclusivity Period For Plan Of Reorganization ("Exclusivity Motion"). The Exclusivity Motion was opposed by Merced Irrigation District, Northern California Power Agency, City of Santa Clara, and the City of Palo Alto. The CPUC took no position on the Exclusivity Motion and the Committee offered its comments, suggesting that if its and CPUC's present plan of reorganization is not confirmed, third parties should be given the opportunity to present alternative restructuring proposals, working through and with the Committee.
The court held a hearing on the Exclusivity Motion on January 22, 2003. At the conclusion of the hearing the court indicated its ruling, namely that at the present time exclusivity would be continued as it presently exists, and that the court would issue an appropriate order at an appropriate time. In this Memorandum Decision the court sets forth its reasons for granting the Exclusivity Motion and denying the Preferences Motion.
II. Discussion
As all parties are fully aware, the court is in the midst of an extremely lengthy, complex and expensive confirmation trial regarding Debtor's September 20, 2001 Plan Of Reorganization Under Chapter 11 Of The Bankruptcy Code For Pacific Gas and Electric Company (as amended from time to time the "PGE Plan") and the April 15, 2002 California Public Utilities Commission's Plan Of Reorganization Under Chapter 11 Of The Bankruptcy Code For Pacific Gas and Electric Company (as amended from time to time, and as of October 23, 2002, jointly sponsored by the Committee as a co-proponent, the "Joint Plan"; together with the PGE Plan, the "Competing Plans"). So far the confirmation trial on the Competing Plans has taken twenty-three days and is scheduled for ten more days this month and at least twelve days in March. The court cannot even guess when all of the evidence will finally be submitted nor when the parties will be invited to present arguments in support of their respective positions.
Twice during the course of this Chapter 11 case the court has altered Debtor's plan exclusivity over its objection. On March 11, 2002, it terminated exclusivity and permitted the CPUC to file what ultimately became the Joint Plan. By its order filed on July 9, 2002, the court terminated exclusivity as to the Committee. Committee's subsequent joinder with CPUC in support of the Joint Plan presumably is the reason why it has not filed a plan of its own.
At the January 22, 2003 hearing on the Exclusivity Motion, several objectors contended that the court should terminate exclusivity if for no other reason to "level the playing field" and provide an environment that would permit objectors and others the comfort of knowing that they have the right to file a plan if they choose to do so. Without factual support, one objector contended that prospective plan proponents feared retaliation by Debtor if they actively support an alternative plan. Despite the rhetoric, there is no evidence either of the existence of an alternative plan or any that any would-be plan proponents have been deterred from coming forth and seeking permission to file a plan. The court further notes that as far back as June 27, 2002, at a hearing on an extension of exclusivity, it invited any serious proponent who wished to file a plan to come forward and seek to have exclusivity terminated on an expedited basis. Nothing has changed since then. No other proponent has come forth with an alternative to the PGE Plan and the Joint Plan, notwithstanding the frequent discussions throughout this case of a so-called "Plan C," the unspecified plan that would likely emerge if confirmation is denied both of the Competing Plans.
The court remains convinced that no purpose would be served by permitting parties to file plans at this time. As noted on January 22, it is possible that the PGE Plan or the Joint Plan will be confirmed. If that happens, a new Plan C would have no constructive effect and might only confuse the vast universe of parties (creditors, rate payers, the public) interested in a successful resolution of this important Chapter 11 case. Further, as long as the Competing Plans remain supported by their respective proponents, and as long as the court has not denied confirmation of either or both of those plans, the court would not likely permit the confirmation and disclosure statement process to recommence as to any other plan.
That being said, the court is mindful of the need to provide a readily accessible vehicle for consideration of Plan C if and when the Competing Plans no longer constitute viable alternatives for resolution of this case. Thus, it is the court's determination that exclusivity should remain in its present posture, i.e., with the Competing Plans being tested for confirmation while the Committee remains authorized to file its own plan if and when it chooses. Whenever the situation changes the court may issue another order further terminating exclusivity, in whole or in part. Of course, any party in interest remains free to move to seek termination.
As to the Preferences Motion, the court is fully aware of several irrefutable facts: (1) when creditors were asked to vote to accept or reject the PGE Plan and the CPUC Plan (before it became the Joint Plan), only those creditors who voted to accept both plans were permitted to express their preference as to which plan should be confirmed. This is completely consistent with 11 U.S.C. § 1129(c); (2) the PGE Plan was accepted by a substantial number of creditors and all but one impaired class of creditors; the CPUC Plan (again, before it became the Joint Plan) was accepted by only one impaired class; (3) the Committee's joinder with the CPUC in support of the Joint Plan, as well as substantive changes from the CPUC Plan, not the least of which are the presence of the Reorganization Agreement and the CPUC's consent to jurisdiction in this court to enforce that agreement and the Joint Plan, are significant; and (4) numerous events have occurred since the original preference solicitation that may materially influence a creditor in expressing that creditor's preference for the PGE Plan over the Joint Plan, or the Joint Plan over the PGE Plan.
Nevertheless, this case is far too much in "real time," with changes happening almost weekly both within the Chapter 11 case and outside in other places such as state and federal administrative agencies, state and federal courts, and the California Legislature, to know when to assemble all "relevant" information to solicit preferences once again. There is no realistic way to pick a precise time to close off the information that may be useful to permit a creditor to express a preference. No doubt as soon as a resolicitation process began some other material event would occur, thus rendering the information incomplete, at best, and perhaps even out of date or misleading.
Similarly the court is unable to fashion any meaningful way to go about obtaining the preferences of creditors and then determining what to do with those preferences once received. The court is well aware of the forces at play during the confirmation process and could no doubt identify readily the preferences of numerous active participants in this case. While it could not glean the preferences of significant parties who have not taken an active role in the case, the court does not believe that it would be useful or helpful to try to oversee a lengthy, expensive and time consuming "straw poll" of the creditor body.
From a practical point of view there are other reasons that lead the court to conclude that no further preference solicitation should be conducted. First, to do so would be an idle act if either of the Competing Plans is denied confirmation or is withdrawn. Second, there remains the possibility that both plans will be denied confirmation. The court cannot forget the fact that each proponent has vowed to defeat the competing plan. Third, the volume of material in the form of documentary evidence, witness testimony and legal arguments presented in the confirmation trial create a daunting task to this court to make a prompt decision on confirmation of the Competing Plans once the confirmation trial is over and the matters are submitted for decision. Only if and when it determines that both Competing Plans are confirmable, would a preference solicitation serve any purpose. However, many parties have expressed their concerns about a lag time between confirmation and an Effective Date of a confirmed plan. While it will be difficult enough for the court to sift through the evidence and to apply the law to get to confirmation, it has no desire to put the entire case "on hold" while some sort of preference solicitation takes place. Not only are the practical burdens significant, but, as noted above, the court is without guidance as to what it would do with the preference votes. In this regard the court is persuaded by many of the reasons set forth by Debtor in its opposition to Preference Motion. Those reasons will not be repeated here.
Lest the parties believe the court is thinking of abrogating its responsibilities under 11 U.S.C. § 1129(c) that is not the case at all. Rather, the court expects active parties to voice their preference in their closing arguments to be submitted for or against confirmation of the Competing Plans. Parties who have not been active in the confirmation trial are free to file written statements of preference and the court expects Debtor on the one hand, and the CPUC and the Committee on the other hand, to advise the court of any statements of preference for their respective plan filed in this case. However the preferences are communicated to the court, it will give whatever weight to that information it deems appropriate.
III. Disposition
The court is concurrently with the issuance of this Memorandum Decision entering orders granting the Exclusivity Motion, extending exclusivity in part, and denying the Preferences Motion. Counsel for Debtor is directed to serve a copy of this Memorandum Decision and the two orders on all parties who continue to have pending objections to confirmation of either of the Competing Plans.