Wall Street Ties of Lawyer for PG&E Fire Victims Have Some Survivors Querying Settlement Vote

The remains of homes in Glen Ellen smolder in the wake of the North Bay firestorm in 2017. A dozen of those blazes were sparked by PG&E-owned power lines. (Justin Sullivan/Getty Images)

A potential conflict of interest on the part of a lawyer representing PG&E fire victims is prompting questions about the integrity of an ongoing vote by fire survivors on their multi-billion-dollar compensation deal with the utility.

The concerns stem from revelations into how Texas-based lawyer Mikal Watts, who represents more PG&E fire victims than any other attorney, has financed his litigation.

Watts has been active in soliciting "yes" votes on the controversial compensation deal that he helped broker with the official committee of fire survivors in the PG&E bankruptcy.

On paper, that settlement deal is worth $13.5 billion, with PG&E paying half of that in cash and half as PG&E stock upon exiting from Chapter 11. Voting began on April 1 and continues through May 15, even as key details including the timing and final amount of the payment remain under negotiation with PG&E. The plan requires support from two-thirds of the fire survivors who vote.

Last week, Watts acknowledged to KQED that his credit line includes financing from Wall Street interests negotiating against the fire victims Watts is representing in the case. Those firms stand to reap a financial windfall if the plan passes. The potential conflict of interest was revealed in a court filing by a Tubbs Fire survivor who also cast doubt on the voting process last week.

Allegations of voting impropriety stemming from Watts' financial ties have exposed a long-simmering rift between mass tort attorneys like him and former members of the official bankruptcy committee who have misgivings about the deal.

"Mr. Watts and his affiliated lawyers are conducting an extensive, intense, expensive and almost frantic campaign through multiple media to convince not only their own clients, but all other fire victims to vote for the Plan," wrote attorney Steven Kane in a court filing this weekend.

Kane is asking Judge Dennis Montali, who is overseeing PG&E's bankruptcy, to make Watts inform his clients of the potential conflict, and get their consent in writing, which is required under California State Bar rules. Kane also wants the 13,000 "yes" votes Watts' clients have cast so far to be thrown out for those who don't grant their consent to their attorney's financial ties.

Kane represents Camp Fire victim Karen Gowins, who last month joined two other survivors in resigning from the official survivors' committee in the bankruptcy so she could publicly oppose the plan. At the time, Gowins told KQED she was not allowed to voice her opposition as long as she remained on the committee.

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Watts represents 16,000 clients out of an estimated 70,000 claimants, and maintains that all the votes should be counted. He told KQED he informed clients about the financial ties at in-person town hall meetings in Santa Rosa and Chico in December. His team then shared videos of those meetings electronically with clients, he said.

But that's not enough under California State Bar rules, according to Western State College of Law professor Kevin Mohr, who sits on the Bar's task force in charge of educating members on professional conduct guidelines.

"Sharing it at a town hall is a disclosure, but there's no evidence that clients have understood that disclosure," Mohr told KQED. "You have to obtain informed written consent of all affected clients."

Watts told KQED last week that he didn't know about the financing arrangement when it was made by a broker. He said he learned of it once he became heavily involved in negotiating the settlement between PG&E and his clients. He maintains the funding did not influence negotiations. In a filing Tuesday, Watts said the law calls for written disclosure, which he says he provided to clients, but not written consent. He called Kane's approach "tactical, a bald attempt to snatch defeat from the jaws of victory."

On Monday, lawyers for another former member of the official fire survivors' committee – Camp Fire survivor Kirk Trostle – detailed alleged voting-by-text improprieties in a filing with U.S. District Judge James Donato, who is in charge of estimating the dollar amount of claims against PG&E.

The filing accuses law firms that favor the plan of "making it more difficult for a fire victim to vote to reject the plan than to accept it." Trostle's attorney, Thomas Tosdal, wrote that such alleged behavior "has a chilling effect on voting to reject the plan."