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(edited) PALCO’s creditors are pulling out the stops. I guess they’re concerned about the alternatives offered by the Mendocino Redwood Company and the Nature Conservancy coalition and they’re looking for heavyweights to back their plan.

I haven’t really explored this story, and actually I haven’t really put a lot of work into my blogs lately. I’ve had a vacation, a rush of business, and some family activities which have really taken up my time. I do hope to put in some quality time on this and other local issues when it all slows down.

In the meantime, the Town Dandy explains with some humor the NCJ creditor’s vote in the proceedings. It’s a much better update than I can provide at the moment.

Addendum: Thanks to one of the posters for bringing to my attention that Wilson is not supporting one of the PALCO plans, but a creditors’ plan. Apologies for getting that wrong.

March 6, 2008


Clendenen Urges Board to Send Letter to Bankruptcy Court

The Second District, more than others, has been severely impacted by the actions of
Maxxam/PALCO over the last 20 years and now with a bankruptcy judge holding the
future disposition of hundreds of thousands of prime timberland, again the Second
District residents will be positively or negatively impacted by a decision from
Texas. It is time for our Board of Supervisors to take a stand.

I strongly encourage the Board of Supervisors to send a letter to the bankruptcy
court outlining the following points:

1. The reorganization plan must maintain the 200,000 acres of timberland in
single ownership and as working forest.

2. The plan must allow for the regeneration of timber inventories to ensure
long-term sustainable yields.

3. The Scotia sawmill needs to be successful for the long term since it also
fulfills the needs of many small landowners in the county.

4. Any future owner needs to commit to honoring the Habitat Conservation Plan as
part of the Headwaters Agreement.

We need to look at the long-term benefits to the community. In addition to a steady
supply of good-paying jobs, a successful court decision will be pivotal in
maintaining our working natural resources. Since the year 2000, over 600 jobs have
been lost at PALCO. We can’t afford to lose any more.

For more information contact:

Bill Thorington, campaign manager

(707) 496-4703

David Jervis, media relations

(707) 498-0260

The Chronicle is upbeat about the potential. Local activists have been very much involved on the process. I was thinking it sounded a bit Utopian early on, but something might actually come of this.

But bankruptcy rules have opened the door to another option: New bidders with offers to snap up the land and Pacific Lumber’s world of mills, a power plant, schools, shops and the small company town of Scotia, built up during 100 years of operation. Selling off these holdings could mean harm to hundreds of families tied to Pacific Lumber, acquired by Maxxam in a junk-bond takeover in 1986.

One outside bid is headed by the Nature Conservancy, a blue-ribbon group that has lined up financial and lumber firms in a team that promises to preserve many of the oldest trees and cut the remaining stands over time. It would make permanent the timber cutting policies forced on Maxxam that now have a 42-year life.

The second bid is brought by the Mendocino Redwood Company, owned by the billionaire Fisher family, which founded the Gap clothing chain. This bid would unite the state’s two biggest redwood companies, and its leaders pledge to follow careful tree-cutting practices.

With either bid, the potential is enormous for maintaining a forest that operates in harmony with environmental groups and timber economics. The bids would keep jobs, taxes, and business flowing in a region where the once-dominant lumber business is in decline. And it wouldn’t call for the costly, unrealistic solutions of a massive government buyout or a logging ban. “Nobody wants a 200,000-acre park,” said Paul Mason, deputy director of the state Sierra Club.

The editorial goes on to praise Gov. Schwarzenegger’s involvement. ISF director John Rogers has been very involved in the process and he seemed optimistic in my last conversation with him.

Stay tuned.

From Mark Lovelace:

Release January 31, 2008

Alliance of Timber Industry Investors and Conservation Interests Intend to Bid on Great Redwood Forest. Coalition’s Proposal Focuses on Permanent Sustainable Timber Operation and Protection in Humboldt County.

(January 31, 2008, Humboldt County, California) – An alliance of community groups, conservation organizations and private investors formally expressed interest in acquiring more than 200,000 acres of redwood forest, the Scotia sawmill and other assets. The coalition’s proposal would create a sustainable timber operation, which would preserve jobs by guaranteeing the forest is always kept in working timber management, and would ensure permanent protection for the remaining old-growth.

In court filings yesterday, the Indentured Trustee for the Noteholders, the largest secured creditor group in the bankruptcy proceedings, proposed a restructuring plan for Scotia Pacific that included an auction of the timberlands and other assets. In a letter sent to the Indentured Trustee earlier in the week, the alliance expressed interest in purchasing the timberlands, mill and other assets.

If the coalition’s proposal comes to fruition it would ensure that 197,000 acres of redwood forests will be permanently kept in sustainable timber management, which provides a permanent source of jobs for the local community, and resolves a long-running environmental dispute by protecting the remaining old-growth and environmentally significant habitat.

“Our goal is to recover the job base by recovering the resource base,” said David Simpson of the Community Forest Team.

The coalition’s proposal, while dependent on an open and public auction occurring, would aim to:

a.. Place 197,000 acres under permanent protection through an enforceable conservation easement that ensures the forests are managed in an environmentally sustainable way while providing a continuous supply of timber to mills in Northern California

b.. Set aside the most ecologically important habitat, including old-growth forests, in publicly protected wildlife areas

c.. Maintain the operations of the Scotia sawmill

d.. Support the current local economy by keeping the forests in sustainable timber management in perpetuity regardless of future ownership

e.. Position Humboldt County to take advantage of future economic opportunities, such as the emerging carbon market

f.. Extend key elements of the existing temporary Habitat Conservation Plan into perpetuity through the easement

­The alliance is a unique combination of experienced and well-capitalized timberland investors and mill operators, globally significant financial institutions, non-profit conservation organizations and community interest groups that combine four powerful elements:

a.. timber industry experience and private financial capacity required for a transaction of this scale,

b.. wood products industry operating expertise and financing capacity

c.. conservation and scientific expertise to ensure that the lands are managed appropriately and the most sensitive are protected; and

d.. community stakeholders to represent the community’s position in decisions for the long-term future of its local forests.

“Our goal, as partners in the alliance, is to focus our operational and financial resources on the Scotia sawmill,” said Tim Fazio, managing partner of Atlas Holdings. “We believe that this mill, coupled with sustainably managed timberlands, can be a viable enterprise and a source of employment and economic stability for the region.”

“Our proposal of a permanent working forest means permanent work for the community,” said John Tomlin, managing member of Conservation Forestry. “The local mill operations are critical to a viable, permanent working forest.”

“Our coalition has the financial capacity, timber management expertise, conservation interest and local community participation to offer the best solution for the community, local workers and for conservation,” said George Yandell, North Coast project director for The Nature Conservancy’s California chapter.

“The Murphy family was a good steward of these lands for years before financial pressures forced a sale,” reflected Simpson. “We want to ensure that the jobs and the land are cared for regardless of future market pressures or changes of ownership. We are proposing a permanent working forest that provides a permanent supply of timber for local mills and local jobs. We want what is best for the long-term viability of the community, the local timber industry and for the
long-term health of the forests. We have found investors whose interests are compatible with our own.”

Though unique, the make up of the coalition is modeled on previous partnerships of conservation interests and private timber investments that have successfully conserved huge tracts of forests, while developing sustainable timber harvesting practices that support local jobs and help ensure a healthy timber industry in the future.

“The Great Redwood Forest,” which includes the long-disputed Headwaters Forest, represents fully 10 percent of the redwoods left on Earth, is home to numerous threatened or endangered species and comprises nearly half the watershed of Humboldt Bay.


Jordan Peavey, The Nature Conservancy, 415-281-0492,

David Simpson, Community Forestry Team, 707-629-3670,

Jennifer Benito, Save-the-Redwoods League, 415-362-2352 x314,

Zach Sufrin, Atlas Holdings, 203-622-9138,

Eloise Hale, Bank of America, 980-387-0013,

Art Harwood, Redwood Forest Foundation Inc., 707-984-6181,

What followed was a description of each involved group, which I’ll post in the comments section.

Addendum: Meanwhile, PALCO has finally gotten around to submitting its bankruptcy plan, and the Governor weighs in.

Photo comes from the Nature Conservancy site.

Alright, I’ve read through the decision, and I’m going to read it again. The PALCO attack on the case was two pronged – based upon Civil Code §47b and the federal Noer-Pennington Doctrine. I spoke to an attorney friend of mine who says that had the case been filed as a criminal case (the statute passed while Terry Farmer was still D.A.) it could have eluded section 47b which applies only to civil cases, but I’m not certain it would elude the courts’ interpretation of the federal doctrine.

So here’s a question to everyone, including the Gallegos detractors. The Court decision, perhaps based on the Supreme Court decision, has pretty much reduced the “sham exception” to nothing by allowing “lobbying” to define a permit application. My question is – is there anything in the decision which would reserve the state’s power to prosecute me should I deliberately submit fraudulent information in my application for a permit for an extension to my home? How about a driver’s license application? I will remember the doctrine, and this case, for my own clients.

The weird thing about the decision is that they chose to weigh in on the evidence of the process being undermined, even though it was irrelevant to their decision and they aren’t supposed to weigh in on evidence at the demurrer phase – something they admit at the end.

Maybe doctrine has immunized everybody from fraud against the state and the legislatures need to reinforce the “sham exception.” I don’t know.

So to repeat the question which nobody has really addressed since the demurrer was first granted – is there any application for a permit or anything you want from government which isn’t a “genuine attempt to influence government action?”

Humboldt County loses against PALCO. There’s no indication on the docket as to whether there will be a published decision, but hopefully at least a written one will be made available.

Thanks to Hank for noticing.

Remember that mediation the bankruptcy judge ordered while chastising PL? The Times Standard is reporting that negotiations have “broken down.” Coincidentally they broke down last week just after the TPZ process was shut down by the BOS.

Court documents show that the mediation ordered by Corpus Christi, Tex. U.S. Bankruptcy Judge Richard Schmidt in October was unsuccessful, and was abandoned last week. Schmidt on Tuesday granted the timber noteholders’ request to hold a hearing to end Palco’s period of exclusivity for submission of a restructuring plan.

That hearing is set for Friday.

Palco’s reorganization plan called for culling out 22,000 acres of timberland to be divided into 160-acre ranchettes, and to sell 6,600 acres of forest considered important for the threatened marbled murrelet. That, the company said, would give it the money it needed to pay down its huge debt. The plan sparked significant controversy in Humboldt County, but also met with disbelief from the noteholders, who offered another plan. (emphasis added)

Whatever squeeze PL may have been feeling, it’s apparently gone now. We’re on our way to becoming a retirement community along the lines of Palm Springs.

A few days ago Mark posted the following about Tuesday’s hearing. I think it’s noteworthy enough for the main page.

Mark Lovelace said…I was there in Corpus Christi on Tuesday. No one from Palco cared to correct the judge as to whether PL is really the largest landowner and employer. Ultimately that was not the point. The implication of the judge’s question was that something must really be wrong when no one is coming to this company’s defense.

PL’s attorney tried to explain it away by saying that Humboldt County is “a tough place,” to which the judge responded perceptively “Maybe it’s a tough place because you made it a tough place.”

And, 10:39/1:37, the judge made some very heartfelt comments at the end of the hearing that showed he really understands that this bankruptcy is much bigger than just the sum of the company’s debts and assets. He realizes that this will affect all of Humboldt County, including the workers, the community, the economy, and the environment.

He said that in his 20 years as a bankruptcy judge, he has had a very few cases that simply could not be resolved, and this is one of them. He then said, “Maybe part of that is my fault, maybe I haven’t been able to give this case the leadership it deserves, and if so I’m sorry.”

Remarkable! I’m at a loss for more words.

The judge invested four hours watching the county hearing on the development of timberland. He was impressed, or unimpressed depending on the vantage point. Whatever you think of the county council’s resolution, it made an impression in Texas. The judge was hinting to PALCO that they might want to forgo some of its patented unilateralism.

From the Eureka Reporter:

“It would be a whole lot more valuable if you had somebody on your side,” Judge Schmidt said. “You don’t have the county; the county is so incensed they passed a resolution.”

And this gem!

Kinzie said there was one supervisor on their side — Rodoni.

“Aren’t you the biggest employer in the county?” Schmidt said. “And you only got one supervisor?”

Almost makes me want to take back what I’ve said about this judge’s rulings so far. Almost.

Heraldo has the details. He provides a link to the letter and to the Bankruptcy Code section to which the letter refers. It’s the provision that automatically stays lawsuits and quasi-judicial administrative action against the debtor. It’s not my area of practice and I’ve only quickly reviewed the code, but a quick word search of the statute revealed no reference to legislation anywhere in the code. Is PALCO trying to argue that once a debtor enters bankruptcy that no legislative body can pass any law which might adversely affect the debtor’s bankruptcy plans?

Here’s the operative portion of the letter, which I think was a mistake.

However, in order to open that dialog, the Debtors need clarification as to the
inconsistency you describe in your letter. The proposed plan, which as you know is in its very early stages, is predicated on single-family residential uses on 160-acre minimum lots that are consistent with all existing zoning and land use constraints and would not require any change in existing zoning to be implemented. As you know, no application has been made to Humboldt County and no specifics, other than the use of one residence per patent parcel lot, have really been proffered. We therefore find your letter to the Bankruptcy Court perplexing and, accordingly, we respectfully request that you provide to us and the Court evidence and supporting documentation detailing the manner in which the proposed residential development described in the Ordinance and accompanying documents could be “inconsistent with existing land use plans and policies.”

The Debtors believe that the Board of Supervisors’ actions to preemptively block the Debtors’ Joint Plan may have violated the automatic stay of Section 362 of the Bankruptcy Code. The Debtors do not waive any of their rights in respect of Section 362 or any of their other rights and remedies in connection with this matter, whether at law, in equity, or otherwise.

Lawyers really annoy me. Of course they’re not going to “waive” any rights. Nobody asked them to waive rights. What they mean is “we’re looking for a way to nail your ass, and when we find one you better run like the wind.” But it’s the way you word it when you don’t have anything, and after two weeks you’d think they’d have a more definitive letter, complete with case cites and a very specific argument. Nobody’s going to be intimidated by anything less under these circumstances.

The first paragraph demands some action from the County, namely to provide some sort of evidence to the Bankruptcy Court. The County isn’t a party to the action and it’s under no obligation to submit evidence of anything to anybody. I’m not even sure they have standing to do so. Certainly the Bankruptcy Court in Texas has no jurisdiction over County legislation.

They’ve got nothing, and they just tipped their nothing hand.


July 2020