Pacific Gas and Electric Co.

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UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re 	)
) Bankruptcy Case
PACIFIC GAS & ELECTRIC COMPANY, 	) No. 01-30923DM
a California corporation, 	)
) Chapter 11
Debtor. 	)
___________________________________)
MEMORANDUM DECISION ON
SUBSTANTIAL CONTRIBUTION MOTION
I. 	Introduction
The City of Palo Alto (“Palo Alto”) filed a Motion Of The
City Of Palo Alto For Order Directing Payment Of Reasonable
Attorneys’ Fees And Costs Pursuant To Section 503(b)(3)(D),
503(b)(3)(F) And 503(b)(4) (the “Motion”), together with a
supporting Memorandum of Points and Authorities and a Declaration
of Grant Kolling (the “Kolling Declaration”). 	The Motion was
opposed by Pacific Gas & Electric Company (“PG&E”). 	The former
Official Committee of Unsecured Creditors (“Committee”) filed
Comments regarding the Motion and other similar motions filed by
other parties.
The Motion came on for hearing on March 8, 2005. 	Palo Alto
was represented by G. Larry Engel, Esq., one of its attorneys;
PG&E was represented by William J. Lafferty, Esq., one of its
attorneys. 	The Committee did not appear.
Signed and Filed: April 28, 2005
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
April 28, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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1 The following discussion constitutes the court's findings
of fact and conclusions of law. 	Fed. R. Bankr. P. 7052(a).
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For the reasons explained below, the Motion will be denied.
II. 	Background 1
PG&E filed its Chapter 11 petition on April 6, 2001, and
shortly thereafter the United States Trustee appointed the
Committee. 	Palo Alto was member of the Committee; the Committee
and Palo Alto each retained its own counsel.
PG&E’s Chapter 11 Plan of Reorganization (the “Settlement
Plan”) was confirmed by an order of the court on December 22,
2003, following lengthy and contested confirmation trials on
earlier plans, a lengthy settlement conference before a bankruptcy
judge of this district, and a further contested trial on the
Settlement Plan.
Palo Alto is proceeding under alternative provisions of the
Bankruptcy Code on the Motion. 	Section 503(b)(3)(D) permits the
court to allow “actual, necessary expenses, other than
compensation and reimbursement specified in paragraph (4) of this
subsection, incurred by ... (D) a creditor ... in making a
substantial contribution in a case under Chapter ... 11 of this
title.” 	Palo Alto is undisputably a creditor of PG&E and thus
believes it is entitled to proceed under this subsection. 	In the
alternative, it seeks the same recovery under Bankruptcy Code
section 503(b)(4), which authorizes the court to allow “reasonable
compensation for professional services rendered by an attorney or
an accountant of an entity whose expense is allowable paragraph
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2 Even if a creditor does not have any expenses to recover
under section 503(b)(3), the creditor’s professionals may still
recover compensation under section 503(b)(4). 	Law Offices of Neil
Vincent Wake v. Sedona Institute (In re Sedona Institute), 220
B.R. 74 (9th Cir. BAP 1998).
3 At a hearing on March 8, 2005, the court heard Dynegy’s
substantial contribution motion and denied it on the record
although as of this date no written order has been issued. 	To the
extent that Palo Alto supports its Motion by the arguments that
Dynegy advanced, namely that it should be given credit for
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(3) of this subsection ....” 2 	During this case Palo Alto employed
three law firms as its bankruptcy counsel, but its principal
counsel throughout the entire case was Mr. Engel, who was a member
of each of those three firms in sequence. 	These claims asserted
in the Motion will be referred to as the “Substantial Contribution
Claims.”
Palo Alto also seeks recovery under Bankruptcy Code section
503(b)(3)(F), which authorizes the court to award compensation to
a member of a committee appointed under section 1102 of the
Bankruptcy Code, “... if such expenses are incurred in the
performance of the duties of such committee.” 	This theory of
recovery by Palo Alto will be referred to as its “Committee
Claim.”
Palo Alto thus seeks compensation for its services as a
member of the Committee and contends that it should be compensated
for its opposition to PG&E’s original proposed plan of
reorganization as well as the subsequent plans considered by the
court; it also contends that it provided a dynamic for the
ultimate resolution of this complex Chapter 11 case through court
supervised settlement conferences, much in the same way that
Dynegy Power Marketing, Inc. (“Dynegy”) has sought compensation. 3
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suggesting and encouraging the court ordered settlement
conference, the Motion will be denied for the same reasons stated
on the record in the Dynegy hearing. 	Specifically, the court
observed then, and repeats now, that settlement and settlement
conferences are part of the fabric of bankruptcy and indeed the
court itself considered ordering the parties to a settlement
conference before being asked to do so by the Committee, Dynegy or
anyone else. 	Neither Dynegy nor Palo Alto can establish a
Substantial Contribution Claim under section 503(b)(3) or (4) for
suggesting or supporting a court supervised settlement conference.
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Palo Alto also claims that it pointed out flaws in PG&E’s various
plans and that it provided criticisms of the plan sponsored by the
California Public Utility Commission (“CPUC”) and the Committee
(the “CPUC/Committee Plan”). 	Finally, it contends that its
counsel’s role at trial during an examination of the Committee’s
financial advisor prevented the CPUC/Committee Plan confirmation
effort from failing, and it should be compensated for that as
well.
After describing the foregoing efforts generally in the
Motion, Palo Alto then turns to more specific categories and
divides its Motion into the following:
(1) Moderating and ultimately defeating PG&E’s first
attempted plan of reorganization (the “PG&E Litigation Plan”);
(2) Moderating the CPUC/Committee Plan so that it could
become the foundation for the Settlement Plan;
(3) Improving the Settlement Agreement that was the
centerpiece of the Settlement Plan; and
(4) Preventing or moderating the adverse effects of various
of PG&E’s excessive actions that were not in the best interest of
creditors.
The court will address each of those four categories in turn,
but first must underscore a point made by Palo Alto in its Motion,
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which point is consistent with Palo Alto’s theme almost from the
start of this case. 	That theme is one of David vs. Goliath, and
Palo Alto would have the court conclude that it has reined in the
giant and now must be compensated:
Therefore, by its opposition to the PG&E Litigation Plan and
by keeping the prospect of a competing alternative plan
viable, as well as a ‘Plan C’ fallback, Palo Alto helped save
everyone from even more prolonged litigation over PG&E’s
audacious disaggregation/deregulation agenda. 	Furthermore,
Palo Alto’s objections with respect to actual and threatened
PG&E actions also served to moderate PG&E’s aggressiveness
and thereby reduced PG&E’s liability, including with respect
to the congestion and related transmission-pricing problems
strategically created by PG&E.
Motion 6:7-13 	(Emphasis added; footnote omitted.)
The Committee’s Comments spread the credit much more widely,
pointing out that each member of the Committee undertook a duty to
protect the rights and interests of all unsecured creditors, and
each member accepted appointment knowing it would be called upon
to make “an extraordinary level of commitment in this large
complex case.” 	The Committee alluded to the substantial expense
incurred by all members, including their hiring of outside
attorneys to represent not only their individual interests, but to
provide them with advice concerning their activities on and
service as members of the Committee. 	The Committee added that the
significant commitments made by all members were such that it
would not be equitable for certain members to be awarded payment
or reimbursement on account of those efforts. 	The Committee
mentioned and the court accepts as true, that the Committee acted
as a whole, and actions for the Committee should not be attributed
to any individual member. 	The Committee operated through various
members and professionals, and no one Committee member or any of
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4 The court is deciding Palo Alto’s Motion on its own
merits, and does not deny the Motion because other Committee
members (other than Dynegy) did not assert Substantial
Contribution Claims or Committee Claims.
5 Because the court has decided to deny the Motion for the
reasons discussed in this Memorandum Decision, it will not discuss
PG&E’s objection that the Motion provides no adequate breakdown of
the specific time records accompanying the Motion to assess
section 503(b)(4)’s requirement that the compensation be
reasonable “... based on the time, the nature, the extent, and the
value of such services.” 	The court notes, in passing, that PG&E’s
point is well taken, and were the court inclined to grant the
Motion generally, this problem with the supporting documentation
might have presented further difficulties for Palo Alto.
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the Committee’s professionals can take individual credit for the
results. 4
The Committee does acknowledge that Palo Alto assisted the
Committee during the confirmation trial by cross-examining the
Committee’s financial expert to help clarify points that it
concedes and Palo Alto contends needed to be established in the
trial record. 5
III. 	Discussion
A “substantial contribution” to the bankruptcy case by the
creditor is the sine qua non of recovery under section 503(b).
See 2 Norton Bankruptcy Law & Practice 2d § 42:28 (1997) (“The
preeminent question to be asked before awarding professional
compensation under § 503(b)(4) is whether the services resulted in
an actual, direct and demonstrable benefit to the estate.”). 	A
creditor’s request under this section should be allowed only if
the creditor demonstrates by a preponderance of the evidence that
the expenses were incurred in an endeavor that “provide[d]
tangible benefits to the bankruptcy estate and the other unsecured
creditors.” 	In re Catalina Spa & R.V. Resort, Ltd., 97 B.R. 13,
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6 It remains unclear whether a creditor’s motivation is
dispositive or even relevant in deciding whether to allow a
substantial contribution claim. 	The concurrence in Cellular 101
discussed the issue but the majority held that it did not need to
resolve the issue because the extent to which the estate was
benefitted clearly outweighed the benefit to the party making the
contribution. 	Cellular 101, 377 F.3d 1097-98 (majority) and 1098-
99 (concurrence). 	This court has never questioned Palo Alto’s
motives and assumes, for purposes of this discussion, that the
actions described in its Motion reflect a motivation that would
not be insufficient for purposes of Section 503(b).
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17 (Bankr. S.D. Cal. 1989).
The measure of any “substantial contribution” is the extent
of the benefit to the estate. 	Cellular 101, Inc. v. Channel
Communications, Inc. (In re Cellular 101, Inc.), 377 F.3d 1092,
1096 (9th Cir. 2004) (quoting In re Christian Life Ctr., 821 F.2d
1370, 1373 (9th Cir. 1987)). 	That benefit does not necessary have
to lead to confirmation of a plan; 	it could also be a substantial
contribution if a party uncovered facts that would lead to denial
of confirmation. 	Id. at 1097 (citation omitted). 6 	As the
following will demonstrate, the problem for Palo Alto on the
present record is that the court cannot call Palo Alto’s
contribution “substantial.”
(1) Moderating/Defeating the PG&E Litigation Plan
Palo Alto argues that it raised certain discrete challenges
(gas and electric transmission matters, nonassignable franchises
issues, etc.), and that had the PG&E Litigation Plan gone forward,
PG&E would have been stopped it in its tracks by Palo Alto’s
formidable defenses. 	But the PG&E Litigation Plan did not go
forward, and the court never was called upon to grant or deny
confirmation of that plan. 	Thus, the court finds it very
speculative to conclude that a substantial contribution was made
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in defeating a plan that was never defeated 	and upon which the
court made no ultimate definitive ruling. 	For these reasons Palo
Alto’s attempts to recover a Substantial Contribution Claim for
the first category described above must fail.
(2) Moderating CPUC/Committee Plan
Palo Alto claims to have moderated the CPUC/Committee Plan.
That statement is easy to make in the abstract; the Motion itself
is extremely vague and affords the court no basis on which to
grant the requested relief. 	Palo Alto says that this court can
call upon its own recollections and observations and reach the
conclusion Palo Alto desires. 	Without commenting on the court’s
own memory and powers of recall, the record must establish those
facts, for without a record a decision would be virtually immune
from appellate review. 	Palo Alto has not carried its burden on
this theory of recovery.
(3) Improving the Settlement Agreement/Settlement Plan
Palo Alto argues that it improved the Settlement Plan by
focusing on ambiguities in the proposed Settlement Agreement. 	It
further contends that improvements in the final Settlement
Agreement would not have been possible without its efforts.
As with the prior category, the assertions are vague. 	In
footnote 18 of the Motion Palo Alto says that some changes it
urged were adopted. 	No details are provided.
More importantly, the court does not have the perception (nor
does the record establish) that Palo Alto’s efforts in this regard
decisively contributed to the result. 	The court is aware that
Palo Alto and the other Municipal Objectors took the lead on the
issues addressed in part VI.A.4. of the court’s original and
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amended Memorandum Decision Approving Settlement Agreement and
Overruling Objections to Confirmation of Reorganization Plan. 	In
re Pacific Gas & Elec. Co., 304 B.R. 395, 413-16 (Bankr. N.D. Cal.
2004) (portion entitled “Specific Provisions of the Settlement
Agreement”). 	The court overruled those objections. 	Id.
Palo Alto’s objections to the Settlement Agreement may have
implicitly suggested a narrow interpretation of the Settlement
Agreement. 	That arguably may have helped to assure that the
Settlement Plan would be confirmable, by reinforcing the court’s
own conclusion that the Settlement Agreement did not violate
California law or the Bankruptcy Code. 	The trouble for Palo Alto
is that the court had already reached those conclusions. 	See id.
at 404-412. 	Palo Alto has not shown that the outcome for
creditors and the estate would have been any different if it had
never objected.
The court assumes without deciding that Palo Alto’s suggested
changes to or interpretations of the Settlement Agreement might
contribute to its and the Municipal Objectors’ future
relationships as customers, competitors, and local regulators of
PG&E. 	That is different from benefitting creditors or the estate.
Palo Alto has not established that its alleged improvements
to the Settlement Agreement and Settlement Plan resulted in a
cognizable and substantial benefit to creditors or the estate.
Therefore, the court is unable to make a finding favorable to Palo
Alto in this category.
(4) Other Substantial Contribution Claims and Committee Claim
As noted above, the fourth category for which Palo Alto
asserts a Substantial Contribution claim is described generally as
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7 The court is not unmindful of the Committee’s
acknowledgment of Palo Alto’s efforts in this regard. 	However,
the court will not insult Palo Alto by attempting to quantify in
minutes or fractions of an hour (and thus in no more than hundreds
of dollars, on account of a request of nearly two million dollars)
the time its counsel spent in the courtroom examining that
witness, and then limiting the award to that amount. 	Even if the
time records were crystal clear on an allocation, the result would
be of no meaningful economic consequence to Palo Alto.
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“preventing or moderating adverse effects” of PG&E’s activities.
The only real specifics here pertain to what Palo Alto’s counsel
calls the salvaging of a witness’s testimony who, on direct
examination by the CPUC and the Committee, failed to demonstrate
how the CPUC/Committee Plan could be confirmed. 	That argument
overlooks the facts that the court invited the CPUC and the
Committee to move to reopen their case, and thus present the same
testimony, and that the court never was called upon to rule on the
confirmability of the CPUC/Committee Plan at all. 	This prevents
the court from finding that Palo Alto established a Substantial
Contribution Claim by the examination of a witness. 7
From the foregoing the court concludes that Palo Alto is
unable to recover Substantial Contribution Claims under section
503(b)(3) or (4). 	Thus it turns to Palo Alto’s alternative under
section 503(b)(3)(F).
The Kolling Declaration describes beyond dispute the
uniqueness of this case and the particular skills and special
knowledge Palo Alto and its professionals brought to the case in a
variety of disciplines and legal specialties. 	The Kolling
Declaration also explains how the Committee welcomed Palo Alto’s
efforts to educate it, and that it collaborated with the
Committee, which might otherwise have needed more help from its
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professionals. 	Despite the Kolling Declaration’s statements, the
Committee’s Comments are more persuasive. 	The record does not
reflect any particulars for which the Committee or its
professionals called upon Palo Alto to perform services on behalf
of the Committee as required by the statute (“... incurred in the
performance of the duties of such committee”). 	Absent a clear
indication that Palo Alto stepped up and shouldered a
responsibility otherwise belonging to the Committee, the court is
unable to grant the Motion and allow the Committee Claim.
IV. 	Conclusion
Despite the tenacious advocacy of Palo Alto’s counsel
throughout this case, and the commendable efforts on his part to
protect his client’s interest, the complexity of this case makes
it all the more difficult to single out any particular party whose
contribution can be said to be “substantial” within the meaning of
section 503(b) and the case law that has interpreted it. 	The
court has little doubt that counsel’s contribution to his client’s
interest was substantial; it cannot say that Palo Alto stands out
as having made a substantial contribution to the case or produced
substantial benefits to the estate.
Because the record does not support evidence that Palo Alto
acted in lieu of the Committee, Palo Alto’s alternative theory for
the Motion must also be rejected.
For the foregoing reasons that Motion will be denied. 	PG&E’s
counsel should submit a form of order denying the Motion for the
reasons stated in this Memorandum Decision, and should comply with
B.L.R. 9021-1.
**END OF MEMORANDUM DECISION**
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COURT SERVICE LIST
William J. Lafferty, Esq.
Howard, Rice, Nemerovski, Canady, Falk & Rabkin
Three Embarcadero Ctr., 7th Fl.
San Francisco, CA 94111-4065
G. Larry Engel, Esq.
White & Case
3 Embarcadero Ctr., te. 2210
San Francisco, CA 94111
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