Judge in PG&E; Bankruptcy Case Seen as a Problem Solver

U.S. Bankruptcy Judge Dennis Montali, who will oversee Pacific Gas & Electric Co.’s bankruptcy reorganization, is a highly respected scholar and effective mediator known for persuading reluctant parties to reach agreement.

In a recent case, Montali achieved in only three days a settlement between a debtor and creditors in the bankruptcy of an international engineering firm. The case had been in bruising litigation for two years when another judge asked Montali to mediate it.

As a lawyer, Montali helped divert a statewide agricultural crisis 10 years ago by persuading warring factions to accept a deal in the bankruptcy of an agricultural cooperative, according to a lawyer in the case.

“He is very good at not embarrassing people but getting them to understand they are wrong,” said lawyer Larry Engel, who has known and worked with Montali for two decades.

Montali, 60, the son of a winemaker, grew up in San Francisco and now lives in Berkeley. He is considered among the top tier of bankruptcy experts in the United States.

He will be calling the shots in one of the largest bankruptcy reorganizations in U.S. history. The case raises unprecedented legal questions and is expected to make new law. Some of the legal disputes may wind up before the U.S. Supreme Court, attorneys said.

Lawyers who know the easygoing, witty judge say he is probably relishing this legal challenge the way a golfer looks forward to playing a new and more difficult course. The court action begins today, when Montali is expected to decide whether PG&E; can spend cash that others have laid claims to.

Right from the beginning, Montali will be in the limelight, and lawyers will be eagerly searching for any clues to his leanings. Montali declined to be interviewed, but those who know him say he is fair, smart, hard-working and thoughtful. He does not browbeat, but quietly negotiates to bring people around, lawyers said.

The judge is highly engaged in his cases. He is well prepared, intellectually curious and knows the hard questions to ask, lawyers said. He also is a relatively quick decision-maker, frequently ruling from the bench.

“Reality tends to come out” in his courtroom because Montali does not allow lawyers to evade his questions, Engel said.

There are few precedents to guide Montali in many of the novel legal questions he is likely to be asked to rule upon. Can he order electricity rate hikes? The law is unclear. Can he force energy suppliers to hold down their prices? Doubtful, bankruptcy lawyers said. Can he force PG&E;’s parent company to cough up some money? Possibly. Can he force PG&E; to sell off assets? Yes, but probably not in the near term.

“This is going to be one of these cases where the envelope is going to be pushed, and I think there is a danger in making any categorical statements right now,” said a bankruptcy lawyer who is involved in the case.

PG&E;’s Chapter 11 bankruptcy reorganization will be enormously complex legally, lawyers said. Montali will have to reconcile state utility law and federal energy law with bankruptcy law. Bankruptcy judges have broad discretion to decide disputes, and Montali will control PG&E;’s purse strings.

Lawyers who know Montali well say he is savvy about using the Internet to communicate court information, masters arcane legal subjects quickly, and probably is thrilled to be making the calls in a case that will be watched nationally.

Some people go on the bench to retire. Montali went on in 1993 to have more fun intellectually, lawyers said.

Montali “tends to be very constructive,” said another lawyer who asked not to be identified by name because he may represent a creditor in the PG&E; case. “He wants his cases to go somewhere, and he tries to encourage people to make progress.”

Before he was appointed to the bench, Montali had practiced bankruptcy law for more than two decades. He began representing debtors but was doing primarily creditor work in his last law firm job with the city’s venerable Pillsbury, Madison & Sutro.

The bankruptcy bar he was a part of is relatively small, and the lawyers who practice it know one another. Several lawyers interviewed about Montali referred to him by his first name.

Because these lawyers are likely to be players together in many cases over the years, trustworthiness is important, bankruptcy attorneys said. Effectiveness requires that other members of the bar trust your word and credibility.

The practice also requires knowledge of economics and economic terms, ease both with deal making and trial work, and above all else, practicality, lawyers said.

Whereas a business litigator may know exactly what he or she will be doing two months from now, bankruptcy lawyers tend to operate on tight deadlines with little notice. Many of these lawyers were at their desks over the weekend preparing for the PG&E; case.

“There is no one in town who is not part of this case,” said Engel, who is representing a municipal utility. “Everyone is involved.”

Montali is tall, lanky and balding. His trademark is his handlebar mustache, which he has worn for decades and which reflects his gregariousness and humor, other lawyers said. He cooks Italian food expertly and likes to sail around San Francisco Bay and walk his dog during his time away from work. His wife, Mary, is in the real estate business, and they have three grown daughters.

As a lawyer, Montali was masterful at bringing about a compromise in the bankruptcy of a major agricultural cooperative a decade ago, Engels said. At the time the co-op went bankrupt, farmers had picked their crops, but there was no money to operate the canneries and no money to pay the growers. Montali was representing a bank in the case.

“We could have had a disaster,” Engel said. “Literally, imagine if 5,000 farmers lost their entire crop because there was nobody to take it. Each of them would have gone into bankruptcy.”

The parties locked themselves together in one place for a week and half. Montali was “at the core of it,” Engel said. He persuaded all parties to agree to a plan that involved selling the cooperative. “He would take someone who was being a problem over to the side and explain that it wasn’t going to work if they persisted that way,” Engel said.

“He is the ultimate reasonable man who convinced them that this path is the one they needed to be on in their own self-interest.”

Richard Levin, a Los Angeles bankruptcy lawyer, said Montali has “tremendous integrity.” As a lawyer, he was cogent and forceful in arguments and would make simple, clear statements that would cause everyone in the courtroom to pause and think, Levin said.

Montali earned a bachelor’s degree in English from Notre Dame University and then entered the Navy to fulfill a Reserve Officer’s Training Corps commitment.

He served in various officer positions on two destroyers and taught briefly at the United States Navy Reserve Officers Candidate School in Newport, R.I., before entering law school. He obtained his law degree from UC Berkeley’s Boalt Hall School of Law in 1968.

Montali has been elected to the National Bankruptcy Conference and the American College of Bankruptcy, both elite bodies reserved for those at the top of their field.

Last year, he was appointed to hear appeals in bankruptcy cases for the U.S. 9th Circuit Court of Appeals in addition to his trial duties.

One of his first cases on the bench ended in disaster. Shortly after he became a judge, he ruled in favor of a landlord who was trying to evict a tenant. The tenant had a bankruptcy case before Montali.

The tenant later went to the landlord’s office, shot and killed him, wounded the landlord’s son and tried to kill himself.

“I didn’t have any regret about the decision,” Montali told the Daily Journal, a legal newspaper, several years ago. “But it reinforced in the real world that I’m making decisions that affect people. It put some real meaning into things.”

In 1997, Montali ruled that a gay man was liable for damages because he failed to warn his former lover that he was infected with HIV before they had unprotected sex.

The case had wound up before Montali because the defendant filed for bankruptcy to avoid paying monetary damages if he lost the sexual battery lawsuit.