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United States District Court, N.D. California

April 9, 2004.

LORETTA M LYNCH and CARL WOOD, Commissioners for the California Public Utilities Commission, Appellants,

The opinion of the court was delivered by: VAUGHN WALKER, District Judge


Appellants Loretta Lynch and Carl Wood seek a stay of the United States Bankruptcy Court's January 5, 2004, confirmation order implementing the modified settlement agreement (MSA) between appellees Pacific Gas & Electric Company (PG & E) and the California Public Utilities Commission (CPUC). DOC # 35. Pursuant to the MSA, PG & E's plan of reorganization (POR) is set to be implemented on April 12, 2004. Because the implementation date is nigh, the court must rule on this matter quickly. And because of the dispatch with which this order must be issued, the court does not address all the possible issues raised by the parties but rather focuses on the most glaring weakness in appellants' application: the significant harm to PG & E, its creditors and the public that a stay would cause and the resulting sharp imbalance of hardships that a stay would impose upon appellees. Based on this circumstance, appellants' motion for a stay must be DENIED.


  PG & E filed for bankruptcy on April 6, 2001. Memo Stay (Doc # 36) at 1:27. Since that time, PG & E has been involved in extensive settlement negotiations with the CPUC and the Official Committee of Unsecured Creditors (OCUC), the complete history of which need not be recited here. The CPUC eventually approved the MSA on December 18, 2003. Id. at 3:5-7. Appellants, who are commissioners of the CPUC, both cast dissenting votes. Id. at 3:7-8. On December 22, 2003, United States Bankruptcy Judge Dennis Montali issued an order confirming the MSA. Id. at 3:11-12. The City of Palo Alto filed a motion to stay the effect of the confirmation order, with which appellants joined. Judge Montali denied the motion to stay on January 5, 2004. Id. at 3:12-14. On that same date, Judge Montali also issued an amended decision that approved the MSA and addressed contested areas of state law. Id. at 3:14-4:1; see also In re PG & E Co., 304 B.R. 395 (Bankr ND Cal 2004) (Montali, Bankr J). Appellants filed a notice of appeal with the district court on February 11, 2004. Doc # 1. The matter was originally assigned to Chief Judge Marilyn Hall Patel. On February 17, 2004, PG & E filed a notice of related cases, contending that the instant matter is related to several cases pending before the undersigned. Doc # 3. Appellants filed a counternotice of related cases, claiming that the case at bar is related to a case pending before Judge Patel. Doc # 19. Judge Patel declined to relate the case on March 17, 2004. Doc # 30. Subsequently, and after conferring with Judge Patel's staff and obtaining her concurrence, the undersigned related this case, and the matter was reassigned on March 19, 2004. Doc # 34.

  On March 30, 2004, appellants filed a motion to stay, along with a motion to shorten time for hearing of that motion. Docs ## 35, 37. All three appellees opposed the motion to shorten time, and PG & E also filed a motion to dismiss. Docs ## 41, 42, 44, 46. In light of the impending April 12, 2004, POR implementation date, the court scheduled the matter for an April 9, 2004, hearing date. The appellees all filed oppositions to the motion to stay at noon on April 8, 2004. DOCS ## 59, 65, 66. Appellants filed a reply brief on the evening of April 8. Doc # 67. The court conducted a hearing on the matter on April 9, 2004.


  The standard of review of bankruptcy court decisions varies with the question raised on appeal. Conclusions of law are reviewed de novo. In re Pace, 67 F.3d 187, 191 (9th Cir 1995). Mixed questions of fact and law are likewise reviewed de novo. In re Bammer, 131 F.3d 788, 792 (9th Cir. 1997).

  Findings of fact are reviewed for clear error. Pace, 67 F.3d at 191. When a bankruptcy court has ruled on the issue of a stay of its order pending appeal, the district court reviews that decision for an abuse of discretion. Universal Life Church, Inc. v. United States, 191 B.R. 433, 437 (ED Cal 1995) (Wanger, J) (citing In re Wymer, 5 B.R. 802, 807 (9th Cir BAP 1980)).

  Federal Rule of Bankruptcy Procedure 8005 governs a motion to stay a bankruptcy judge's order on appeal. Appellants seeking a discretionary stay under Rule 8005 "must meet the terms of a test virtually identical to that for a preliminary injunction." In re PG & E, 2002 WL 32071634, *2 (ND Cal) (Walker, J) (discussing analogous standard to be employed on motion to stay under FRBP 8017(b)). In other words, appellants must show: (1) a likelihood of probable success on the merits and the possibility of irreparable injury; or (2) that serious questions going to the merits are raised and the balance of hardships tips sharply in its favor. Southwest Voter Registration Education Project v. Shelley, 344 F.3d 914, 917 (9th cir 2003) (en banc, per curiam); Roe v. Anderson, 134 F.3d 1400, 1401-02 (9th Cir 1998). Some courts employ a slightly modified version of this test when evaluating a Rule 8005 motion to stay, finding that appellants must show that: (1) appellants are likely to succeed on the merits of the appeal; (2) appellants will suffer irreparable injury; (3) no substantial harm will come to appellees; and (4) the stay will do no harm to the public interest. Universal Life Church, 191 B.R. at 444; see also In re Great Barrington Fair & Amusement. Inc., 53 B.R. 237, 239 (Bankr D Mass 1985) (Glennon, Bankr J). Under either formulation, the relative hardship to the parties is a "critical element" in determining whether a stay is warranted. See Lopez v Heckler, 713 F.2d 1432, 1435 (9th Cir 1983). With respect to the instant matter, appellants' case suffers from several weaknesses. One such problem involves appellants' standing to request such extraordinary relief. Appellees have raised several potential problems with appellants' standing to bring this appeal in the first instance, much less to request a stay, including: (1) appellants' failure timely to object to the MSA on the grounds upon which they appeal; and (2) appellants' lack of a personal stake in the outcome of these proceedings.

  The court need not consider this issue in detail but nevertheless notes that appellants' arguments regarding standing appear unlikely to succeed. Appellants have standing to appeal the order confirming the MSA only if they are "directly and adversely affected pecuniarily by [the] order * * *." In re PRTC, Inc., 177 F.3d 774, 777 (9th Cir 1999) (citation omitted). The personal stake that appellants claim is the possible impairment of their First Amendment rights under ¶ 19 of the MSA. That provision requires the parties to the MSA to "support" the MSA in all judicial, administrative and legal fora and to "cooperate" in the efforts to consummate the MSA. But at the April 9 hearing, appellees disclaimed any interpretation of ¶ 19 that would prevent appellants as individual commissioners from criticizing the MSA. Under the circumstances, the court would find it difficult to conclude that appellants have a personal interest that could be adversely affected by the confirmation order. Appellants are simply on the losing side of a vote in the CPUC. The intensity of appellants' conviction that the CPUC majority acted incorrectly does not convert that conviction into a personal loss to support Article III standing. Even assuming that the grounds upon which appellants challenge the MSA raise serious legal questions, this apparent lack of standing would undermine any conclusion that appellants might prevail on the merits of the appeal.

  But the uncertainty of appellants' standing is not the most fundamental problem with the present motion. Even assuming that appellants have a personal pecuniary interest implicated by Judge Montali's confirmation of the MSA, appellants would nonetheless fail to demonstrate that the balance of the hardships favors the issuance of a stay. In its opposition brief, PG & E lists a range of financial harms that would result to it, should the court stay the confirmation order and prevent the POR's implementation. PG & E contends that a stay would jeopardize its $6.7 billion in financing, which has been obtained only after lengthy and complex negotiations. PG & E Opp (Doc # 65) at 9:22-28. PG & E also notes that, for each day the POR is delayed, PG & E is liable to its bond holders and creditors for an additional $1.7 million in interest. Id. at 10:1-5. A delay of more than 90 days would require PG & E to return the bond proceeds to the buyers and to pay massive redemption premiums, which could result in a total cost of $210 million. Id. at 10:11-16. Additionally, PG & E would then be required to return to the market and attempt to raise several billions of dollars in alternative financing. Id. at 10:17-20. The total cost to PG & E of a stay could thus be many millions — if not billions — of dollars, not to mention the possibility that such delay and costs might put the POR at a substantial risk of failure. Such risks and costs constitute significant injury militating against the issuance of a stay. See, e g, In re Public Service Co. of New Hampshire, 116 B.R. 347, 350 (Bankr D NH 1990) (Yacos, Bankr J).

  Additionally, PG & E's creditors would face substantial hardship as the result of a delay. PG & E represents that it is prepared to pay approximately $8.4 billion to its creditors on the POR's effective date. PG & E Opp at 13:22-14:2. Staying the MSA confirmation order would likely cause a substantial delay and, if the entire plan were undermined, could possibly result in creditors not receiving payment at all. Under the circumstances, such delay of payment constitutes significant harm warranting the denial of a stay. Public Service Co., 116 B.R. at 350.

  Furthermore, a stay would jeopardize the public's interest in resolution of bankruptcy proceedings involving California's largest public utility. That public interest is fostered by implementation of the MSA. Although the MSA constrains the CPUC's future conduct in certain respects, the MSA does not surrender or abnegate the CPUC's regulatory authority. See Southern California Edison Co. v. Peevey, 31 Cal.4th 781 (2003). By contrast, appellants' interests in securing a stay are insubstantial. The only clear interest that appellants were able to articulate at the April 9 hearing is their interest in not having their First Amendment rights infringed. Even assuming that the court agrees with appellants that a provision such as ¶ 19 of the MSA constitutes a prior restraint on speech, the jeopardy created by that provision has largely been alleviated. PG & E and the CPUC stipulated at the April 9 hearing that ¶ 19 should not be interpreted to restrict appellants in their individual capacity as CPUC commissioners from criticizing the MSA. Moreover, any issues presented by forcing appellants to "cooperate" in efforts to implement the MSA largely become moot the moment the plan becomes effective. Appellants' interests simply do not compare with the grave harms that would result to PG & E, its creditors and the public if a stay is issued. No reasonable amount of bond could protect the very substantial interests that a stay would jeopardize.

  The substantial harm that would result to appellees is sufficient alone to deny the application for a stay. The court need not at this time fully consider the arguments advanced regarding the merits of the underlying legal questions, nor need the court elaborate further upon the impact of a stay upon the public interest. It is evident that Judge Montali did not abuse his discretion in refusing to stay his confirmation order, and appellants' motion to stay the confirmation order (Doc # 35) must be DENIED. III

  Appellants have failed to demonstrate that the balance of the harms favors the issuance of a stay. Accordingly, appellants' motion to stay Judge Montali's order confirming that MSA (Doc # 35) is DENIED.

  To permit appellants to seek relief in the court of appeals, the court STAYS this order until 6:00 pm on April 9, 2004, and such further time as the court of appeals may order.


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