Judge Rebukes PG&E for Bid to Pay $4M Criminal Fine From Fire Victims' Fund

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Smoke rises from a hillside beneath PG&E transmission lines as Cal Fire crews battled the Kincade Fire in Sonoma County on Saturday, Oct. 26, 2019. (Philip Pacheco/AFP-Getty Images)

A judge overseeing PG&E's bankruptcy is tentatively rejecting the utility's efforts to use a trust set up for Northern California fire victims to pay off its criminal fines.

The controversial approach is slated to be taken up at a bankruptcy hearing on Tuesday, but U.S. Bankruptcy Judge Dennis Montali indicated his thinking in an interim order issued Saturday.

"Some things not only have to be right, but they have to look right," Montali wrote. "Telling fire victims that their money will be used to pay criminal fines and penalties does not look right even if digging through the [settlement agreement or bankruptcy] plan would lead to that literal result."

"This not only looks wrong, it is wrong," Montali continued.

A PG&E spokesperson said the utility intends to provide the necessary context in a discussion with the judge at Tuesday's hearing.

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But Montali's comments indicate he's poised to side with the committee representing fire victims in the PG&E bankruptcy, which is seeking to stop the company from paying any criminal fines and penalties from the $13.5 billion compensation trust that the utility is set to fund upon leaving bankruptcy protection.

Tens of thousands of fire survivors are currently casting ballots on the settlement, with voting set to continue through May 15.

As KQED was first to report last month, the utility tried to use the trust to administer a $4 million fine stemming from its role in sparking the 2018 Camp Fire, which nearly leveled the town of Paradise. PG&E agreed to plead guilty in Butte County to 84 counts of involuntary manslaughter and one count of unlawfully causing a fire.

After fire survivors and Butte County District Attorney Mike Ramsey expressed outrage over PG&E's payment proposal, the company changed course. Along with attorneys representing a large group of survivors, PG&E crafted an alternative plan that would pay the funds using interest accrued on a $11 billion pot of cash set aside in a separate bankruptcy settlement with insurance claims holders. However, in what opposing lawyers called a "strained artifice," the utility planned to send those funds to the victims' trust and pay it from there.

PG&E and the Camp Fire

In a brief filed Thursday, attorney Robert Julian of BakerHostetler, the firm representing the victims' committee in the bankruptcy, wrote that PG&E was taking this action to create a precedent — so future criminal fines and penalties could be paid from the victims' trust.

"PG&E paying a criminal penalty from money set aside for victims of PG&E's involuntary manslaughters could violate the law and certainly violates public policy," Julian wrote. "The [wildfire survivors' committee] is not aware of any situation in which a convicted criminal has been allowed to force their victims to pay the criminal penalties imposed by the court for victimizing them."

In bankruptcy proceedings, the utility's lawyers have consistently maintained that even criminal fines constitute fire victims' claims, according to language in the settlement deal reached with victims' lawyers in December. PG&E has argued that not tapping the fund for these payments could put the utility's financing at risk as it exits Chapter 11 bankruptcy.

In a statement, a PG&E spokesperson said the Butte County resolution "ensures that PG&E will remain in full compliance with the funding commitments it has obtained that are critical to its timely and successful emergence from Chapter 11, and, most importantly, to expedite the fair and timely payments to victims."

The debate over criminal fines is taking place while a much larger civil fine by the California Public Utilities Commission against PG&E looms. The $200 million fine related to the role PG&E equipment played in sparking fires in 2017 and 2018 could serve as another test of how far PG&E can reach into the victims' trust to pay penalties.