Although in the Ninth Circuit the decision to revisit an order under FRCP 60 is “highly discretionary,” judges still must explicitly grapple with the relevant factors. That was the clear message sent by Judge Haywood Gilliam Jr. of the Northern District of California when reviewing an appeal from the PG&E Corporation’s chapter 11 bankruptcy.

As readers may recall, after massive, deadly forest fires broke out across California in 2017 and 2018, a series of lawsuits were filed against PG&E Corporation (“PG&E”) related to its alleged role in causing those fires. One such suit was a securities class action (the “DRRT Action”), alleging PG&E misled investors about its wildfire safety practices.

Facing potentially crippling liability from a slew of litigation against it, PG&E filed for chapter 11 protection in the Northern District of California. Plaintiffs in the DRRT Action filed proofs of claim based on losses relating to their pre-petition purchase of PG&E’s securities. The bankruptcy court then entered an order approving PG&E’s proposed “Securities Claims Procedures” intended to manage those and other claims.

Thereafter, PG&E filed multiple omnibus objections to the securities claims against it. The DRRT Action claimants failed to file responses to two of those objections, which argued their claims were untimely under the applicable statute of repose. Given the failure to respond, the bankruptcy court disallowed certain claims in the DRRT Action.

Realizing their mistake, claimants from the DRRT Action sought relief pursuant to FRCP 60(b)(1), made applicable to bankruptcy cases through Rule 9024 of the Federal Rules of Bankruptcy Procedure. Substantively, the claimants argued PG&E’s omnibus objections were unsupported because they only referenced the three-year statute of repose under the Securities Act, not the five-year period under the Exchange Act. Procedurally, the claimants stated that their failure to respond was the result of “excusable neglect,” as the omnibus objections were transmitted to them via first class mail during the COVID-19 pandemic, and the mail had not been opened or processed until after the deadline to respond.

At a subsequent hearing, the bankruptcy court expressed its view that “at the end of the day, I believe [the substance of the order] was error.” In re: PG&E Corp. & Pac. Gas & Elec. Co., 22-cv-02633-HSG, 2023 WL 3082344, at *3 (N.D. Cal. Apr. 24, 2023) (alteration in original). Then, citing the “highly discretionary” standard in the Ninth Circuit, the bankruptcy court found it appropriate to grant relief from its order disallowing claims from the DRRT Action. PG&E appealed.

On appeal, after reviewing the procedural history, the district court set forth the applicable standard: “the court may relieve a party or its legal representative from a final judgment, order, or proceeding based on mistake, inadvertence, surprise, or excusable neglect,” but in doing so, the court “must apply” the following four-factors, “(1) the danger of prejudice to the non-moving party, (2) the length of delay and its potential impact on judicial proceedings, (3) the reason for the delay, including whether it was within the reasonable control of the movant, and (4) whether the moving party’s conduct was in good faith.” Id. (quoting Pincay v. Andrews, 389 F.3d 853, 855 (9th Cir. 2004)). The district court continued that under Ninth Circuit precedent, lower courts “should explicitly use the [aforementioned] framework” and “must at least engage with the equitable factors identified.” Id. at *4.

After discussion of the relevant standard, the district court agreed with PG&E that the bankruptcy court committed reversable error by failing to engage in the required analysis. In fact, the bankruptcy court “never made an actual finding of ‘excusable neglect,’ or discussed why such a finding was appropriate under the [applicable] factors.” Instead, the bankruptcy court cited its own general discretion, then used the discretion to reject the substance of PG&E’s “fundamentally wrong” argument regarding the statute of repose. The bankruptcy court never explained how the DRRT Action claimants passed the threshold issue, i.e., acted with “excusable neglect.” In fact, the bankruptcy court “said it was not getting into the ‘nitty gritty of how counsel ought to run their office,’” even though counsel’s failure to open their mail, and the resulting delay, “was one of the central issues raised by the excusable neglect argument.” Thus, the district court concluded, it was unclear “how Rule 60(b) relief could be granted without assessing the factual merits of [the] proffered excuse for failing to file timely objections,” i.e., counsel’s mailroom practices. Id. at *4.

Due to its failure to engage in the required analysis, the district court held that the bankruptcy court had abused its discretion, and remanded the matter for the bankruptcy court “to engage in the required analysis in the first instance.” Id. at *5. In doing so, the district court reminded both parties – and other courts – to carefully engage with the standards set forth in binding precedent, rather than, essentially, skip to the merits to remedy what they view as a “fundamentally wrong” decision.