July 26th 2008

By Nathan Rushton
The Eureka Reporter
July 26, 2008

More last-minute court filings in the Pacific Lumber Co. bankruptcy case Thursday show a less-than-smooth transition as Mendocino Redwood Co. prepares to implement its restructuring plan for PALCO and its lands.

Waiting in the wings are more than 300 PALCO employees who face an uncertain future as the attorneys battle over control.

While PALCO's largest creditor group, Timber Noteholders, has been unable to get judge to grant a stay in the case to delay MRC and Marathon Structured Finance Fund from moving forward with its plan approved by the federal bankruptcy court in Texas on July 8, the Fifth Circuit Court of Appeals has agreed to hear its appeal.

The deadline for a stay already in place expired Friday, which MRC attorneys said was the last impediment to moving forward with its plan.

But the Timber Noteholders, who have argued they were denied their right to auction off the SCOPAC lands under the plan and want the appellate court to review the case, have attempted to halt the transfer of Scotia Pacific's 210,000 acres of timberlands and other assets to MRC, citing a clause in the reorganization plan that prevents it from moving forward while an appeal is pending.

MRC and PALCO creditor Marathon Structured Finance Fund countered that effort with an emergency motion filed late Thursday night seeking a court order to enforce the confirmation order, which has been supported by PALCO and the Official Committee of Unsecured Creditors.

MRC stated in its motion filed Thursday night that the Timber Noteholders and SCOPAC are refusing to cooperate and are seeking an order directing SCOPAC to comply with the confirmation order and to consummate the MRC/Marathon plan.

MRC attorneys argue that the Noteholders' assertion that the appeal clause prevents the plan from moving forward is "meritless."

Judge Richard Schmidt, who heard arguments during a hearing Friday, questioned which court had jurisdiction in the matter.

MRC attorneys argued Schmidt did have the ability to compel SCOPAC to complete the transfer, while Noteholder attorneys said the case was now in the purview of the appellate court after it agreed to hear the appeal.

Schmidt was expected to rule by the end of the day, but had not as of deadline Friday night.