Federal judge hears arguments about FEMA's $4 billion claim in PG&E case

Feb. 27--Attorneys seeking maximum compensation for wildfire victims in PG&E's bankruptcy case argued before a federal judge Wednesday that the Federal Emergency Management Agency is not entitled to a $4 billion cut of the $13.5 billion deal reached by the utility with individual victims, warning that the federal government's claim undermines the ability of people hit by fire to recover.

FEMA officials have said the agency would take back some federal assistance it gave to fire survivors in Northern California if PG&E doesn't pay the federal government for the cost of its response to wildfires caused by the company's electrical system.

The matter hinges on U.S. Bankruptcy Court Judge Dennis Montali's interpretation of a federal law instructing FEMA to seek compensation for its costs responding to disasters intentionally caused by an entity, a rarely used provision for an agency that mostly responds to natural disasters such as hurricanes or earthquakes. Montali took the matter under submission and said he would issue a written order.

In an unusual alliance, PG&E's legal team has aligned with lawyers for wildfire victims urging Montali to disqualify FEMA's claim, arguing the utility's poor track record maintaining its electrical system doesn't mean the company intended to start wildfires, said Paul Zumbro, an attorney representing PG&E.

"A lot of bad things have been said about PG&E, both inside and out of this courtroom, but nobody has accused PG&E of starting these fires intentionally," Zumbro said.

A lawyer for FEMA argued that PG&E's longterm neglect of its electrical system amounted to intent. PG&E knew its maintenance deficiencies could cause fires, according to Michael Tye, a U.S. Department of Justice lawyer representing FEMA.

"You have the evidence of PG&E's repeated failure to maintain its lines over a period of time," Tye said.

FEMA's claim is controversial because it could siphon away more than a quarter of the multibillion-dollar deal PG&E reached with wildfire victims, including property owners, businesses and people asserting wrongful death claims for one of the nearly 130 people killed during a spate of fires linked to the utility's electrical system.

FEMA officials have blamed legal teams for the utility and wildfire victims for failing to obtain input from the federal government while making a deal meant to incorporate all remaining claims. FEMA officials have said federal disaster assistance is meant to come last after all other avenues of aid -- such as insurance or nonprofit support or court-ordered payments -- are exhausted. If a disaster victim receives help after FEMA has already disbursed payments, the agency must take the money back.

The issue has prompted a bipartisan group of federal lawmakers to petition the agency to drop its claim. North Coast Reps. Jared Huffman and Mike Thompson joined a bipartisan group that introduced a bill Tuesday to prohibit FEMA from taking back disaster aid that was given to victims if the agency, for technical reasons, decides it was given in error and received without any evidence of fraud.

Called the Preventing Disaster Revictimization Act, the bill advanced out of the U.S. House of Representatives Committee on Transportation and Infrastructure Wednesday.

Montali also considered arguments from PG&E and wildfire victims against a claim filed by the California Office of Emergency Services, the bulk of which is about $2.4 billion the state agency said it must ask for on behalf of FEMA, which duplicate claims made by the agency. An attorney for the state, Matthew Heyn, told Montali that FEMA could sue California if the state doesn't seek all reasonable avenues to compensate the federal government for its disaster aid. He discussed a case in Hawaii where FEMA sued that state for failing to pursue all available insurance payments to cover the costs of disaster response.

Heyn suggested PG&E find another source of money to pay FEMA.

"We think the survivors should get paid all the $13.5 billion," said Heyn, a deputy attorney general with the state Department of Justice.

Both the federal and state claims are "putting a great deal of pressure on the case" as they are among the last issues to be dealt with before PG&E can present its bankruptcy exit plan to all claimants for a vote, Zumbro told the judge.

Individual wildfire claimants will have a chance to vote on the overall plan. A group of fire survivors have written letters to Montali saying they won't support a plan that allows the federal government to take money they feel PG&E has already promised to help people recover from disasters.

"The time is now to disallow the claim," Zumbro said.

You can reach Staff Writer Julie Johnson at 707-521-5220 or julie.johnson@pressdemocrat.com. On Twitter @jjpressdem.

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