June 7th 2008

By Kelly Zito
San Francisco Chronicle
June 7, 2008

For a quarter of a century, environmentalists, state regulators, a logging town and a corporate giant have waged an acrimonious public battle over a swath of some of the most valuable timberland in California. On Friday, a federal bankruptcy judge signaled that finally the end might be near, ordering that the vast acreage of the Pacific Lumber Co. go to the billionaire founders of Gap Inc.

Ownership of the logging firm, whose assets include the company town of Scotia and the tract where tree-sitter Julia Butterfly Hill staged a two-year protest, would shift to the Mendocino Redwood Co., a 9-year-old logging outfit controlled by Donald and Doris Fisher, under a ruling by U.S. bankruptcy judge Richard Schmidt.

The Fishers were among several suitors competing for control of 145-year-old Pacific Lumber, which was forced to file bankruptcy in January 2007 under a mountain of debt and strict limits on its logging. The Fisher plan, which offers $530 million for the land and promises to keep the Scotia sawmill running, drew wide support from the local community, state regulators and the governor. In his 119-page ruling, Schmidt found the Fishers' company "an experienced, environmentally responsible operator with a proven track record."

"Today's decision ... is good news for the people of California," Gov. Arnold Schwarzenegger said in a statement. "I hope this decision will establish a strong precedent that weighs both the economic and environmental benefit of long-term sustainability and preservation."

However, the judge's order could be challenged by a group of bondholders whose debt is secured by the forestland. They favored a $600 million bid for the land from Texas banker and high-stakes poker player Andy Beal.

But Schmidt's ruling questioned Beal's goals, saying his offer "appeared to be a straw man for a foreclosure sale and not a serious bid to reorganize."

Stay or appeal possible

Nevertheless, the bondholders, who are represented by former California Gov. Pete Wilson, can ask the Corpus Christi, Texas, judge for a stay, which would delay the official transfer to the Mendocino Redwood Co. If the bondholders file an appeal, the case could be tied up in court for far longer. Representatives for the bondholders could not be reached for comment Friday.

"It's not over, and there are some lawyers who are unhappy, so there is still some uncertainty," said Pacific Lumber president and chief executive George O'Brien, who supported Mendocino and congratulated the company on the ruling. "The good thing is, it means we're coming to an end of this whole process. For all the employees, that's a very good thing."

Next week, the judge will hold hearings on possible adjustments to the Mendocino plan's price and on specifics of how the plan would be implemented.

Environmental activists, who have long criticized Pacific Lumber's clear-cutting and other practices under Texas parent company Maxxam Inc., hailed what they hope will be the final step.

"This is a big breakthrough," said Paul Mason, deputy director of the Sierra Club California. "The last 23 years have been an unmitigated environmental disaster by Pacific Lumber. This is an end to that era and the beginning of another that people really believe can be sustainable."

The Mendocino plan calls for logging about 50 million board feet each year of Douglas fir and redwood during an initial period, down from the roughly 100 million board feet harvested now. In addition, the company would seek certification from the Forest Stewardship Council, a group that advocates sustainable forestry.

"From the beginning, our plan has been about taking the forestry practices that have gained a lot of support in Mendocino and bringing it to the Pacific Lumber land and building a business plan that goes toward the long-term success of the Scotia sawmill," said Sandy Dean, chairman of Mendocino Redwood Co.

100 jobs likely lost

With the possibility of an appeal, Mendocino is unsure when it would take over day-to-day operations of Pacific Lumber. The 350-person workforce at the sawmill, currently running only one shift and pumping out about 1 million board feet each year, would shrink to about 250, company officials said.

That is a far cry from the payroll required to run three shifts that churned out closer to 300 million board feet each year during the period following Pacific Lumber's 1986 takeover by Texas financier Charles Hurwitz. At that time, the company and its practices became a lightning rod for high-profile environmental protests, including Hill's two-year residence in the boughs of an old redwood she named "Luna."

That same period birthed the so-called Headwaters Agreement, in which state and federal agencies paid about $500 million to preserve more than 7,000 acres of old-growth forest as parkland. The pact also regulated more stringently how and where the company could harvest timber on the remaining 210,000 acres.

"MRC inherits a landscape that has suffered grievously from more than two decades of serious abuse," said Sam Johnston, private lands campaigner for the Bay Area's Environmental Protection Information Center.

Environmentalists also used Friday's ruling to put forth their own agenda for the land, which includes no cutting of old-growth trees and permanent protection for key areas. But advocates were hopeful the two sides share common goals.

"(Mendocino) may not be perfect, and I expect we'll have our differences," Mason said. "But they're among the best out there."

And if the land does ultimately end up in the hands of a company whose practices are considered unsustainable?

"We'll go back into the trenches," Mason said. "We're not going to let anyone scrape the lands down to the dirt. We have way too much invested in this for way too long to settle for a bad outcome."