August 4th 2008

McKinleyville Press
By Daniel Mintz
August 4, 2008

After years of control by a vilified Texas corporation, the Pacific Lumber Company has re-emerged with a new name, a different owner and an approach to timber harvesting that reflects the company's distant past.

Now known as Humboldt Redwood Company, Pacific Lumber was transferred to the owners of Mendocino Redwood Company on July 30, ending an era that began in 1986 with a junk bond buyout by Texas financier Charles Hurwitz's Maxxam Corporation. And Humboldt Redwood's management has announced a forestry agenda that starkly contrasts Hurwitz's debt-driven one - the new company will seek certification from the well-regarded Forest Stewardship Council, reduce annual harvesting to about 55 million board feet per year for the next decade and have a no-cut policy for old growth.

The turnaround ends over two decades of local strife related to Pacific Lumber's business and cutting strategies. Hurwitz took over the company at the height of the 1980s leveraged buyout trend, using the company's assets as collateral on hundreds of millions of dollars of borrowing. The debt was never significantly paid down and over $700 million of it remained when Pacific Lumber filed for bankruptcy in early 2007.

That action fulfilled the predictions of the county's many Maxxam critics, and federal bankruptcy court proceedings were capped last week with a judge's order for transfer of the company's 211,000 acres of timberlands to its new owners, the Fisher family, which also owns The Gap clothing store chain and MRC. The company town of Scotia and its mill operations have been transferred to Marathon Structured Financing, one of Pacific Lumber's many creditors.

The judge's transfer order will be appealed by timber noteholders who were owed the biggest chunk of money, but in a July 18 memo to Pacific Lumber employees, George O'Brien, the company's CEO, wrote that "the likelihood of success in that effort looks increasingly remote."

And Humboldt Redwood's emergence will change the county's timber economy, as well as its political and social atmosphere, which to this point has been influenced by Maxxam-related economic and environmental issues.

'New Beginning'

Dropping the well-established Pacific Lumber name represents commitment to a new direction. "Given the amount of change, it's appropriate to have a name that reflects a new beginning and is also tied to the community, which will be an important part of whatever success we achieve," said Sandy Dean, the CEO of Mendocino Redwood Company.

To many, a vision of change and success is linked to the health of Humboldt Redwood's forests. "We chose a harvest rate that's based on careful assessment of the timber inventory and we're looking a harvest that's sustained and grown over time, and consistent with the harvest policy used at Mendocino Redwood," Dean said. He added that one of Pacific Lumber's most controversial practices will be stopped.

"Pacific Lumber used clear-cutting on well-stocked conifer stands and we will eliminate clear-cutting," said Dean. He was asked to describe the condition of the timberlands, which have been portrayed as thoroughly plundered by some. "This is a forest that's been managed aggressively," he said. "But it's a forest that has tremendous habitat value and a tremendous amount of standing timber."

Humboldt Redwood's harvest rate is lower than Pacific Lumber's lowest rate in the Maxxam era, which was seen in 2007 with 74 million board feet. The year before saw 99 million board feet cut, said Dean, and an average of 150 million to 160 million board feet was cut from 2000 to 2005. Cut rates peaked at the 250 million board feet range in the years prior to the 1998 Headwaters Deal. Dean said he expects that the new company's harvest rate will increase after ten years, but will follow a principle of cutting less than what's grown.

Something else that will decrease at first is the employee base. Humboldt Redwood will employ about 250 people for its mill and forestry operations, and 50 more in Scotia. Dean said about 50 Pacific Lumber workers will lose their jobs. Salaries and benefits will change, as "market rate" levels will be applied. Some workers will see pay increases, but some will get pay cuts. As of press time, the company's operations were in suspension as rehiring and layoffs proceeded.

There has been some criticism on how the transition's been handled but most residents welcome the arrival of Humboldt Redwood. Dean described forestry as a "long-term proposition" and he used the same term to describe a timber company's "relationship with its neighbors." But the ownership transfer seems to have stirred as many reflections on the recent past as on the future. And they're often bitter. "For people who have been focused on the challenges of the past, I certainly understand how some folks remain unhappy about it," said Dean. "All we can do is duplicate what has worked at Mendocino Redwood Company and do a good job in Humboldt County, and hopefully earn the support of folks who are concerned about the forest."

Hurwitz Out of Humboldt

Those who fought for change while Pacific Lumber existed say its forests need to heal and so does the community. Hurwitz has faced impassioned local opposition tempered by a roughly equal amount of local support for the company, but high debt and drastically accelerated cutting led to multiple lawsuits, a nationally-watched environmental movement and finally, bankruptcy.

Now over, the Hurwitz era in Humboldt County is roundly recognized as one that compromised the timber economy and the environment. If Hurwitz was a predatory raider, he got away with it, and the prospect of a new future doesn't offer much consolation to those who viewed themselves as his enemies. "In some ways Maxxam symbolizes all that's wrong with corporate America and they've done so much damage on so many levels that it's hard to feel just plain cheery that they're gone," said Darryl Cherney, a pioneering Maxxam resistor and a key participant in the movement that led to the creation of the Headwaters forest preserve. "Being that bankruptcy is part of Maxxam's way of doing things, I can't help feeling like this is part of Charles Hurwitz's journey and now he's off to do some dastardly deeds somewhere else."

Cherney said the situation is part of a bigger issue, the increasingly pervasive spread of large-scale industrialization. "So when we look at Mendocino Redwood Company, their plan will be much lighter on the forest but there's much less forest to be lighter with," he said. "And then there's the question of, will they keep their word?"

Eureka attorney Bill Bertain has family ties to Pacific Lumber and the company town of Scotia, which hosted the family business, Bertain's Laundry and Dry Cleaning, beginning in 1920. Bertain's series of legal challenges against Maxxam started when the well-regarded Murphy family's control of Pacific Lumber was given up in the junk bond buyout. He called the Hurwitz era "a great tragedy" and was asked about the future. "It's my understanding that Mendocino Redwood will go more gently on the land and give it time to heal, but Hurwitz left it a mess," said Bertain. "He caused havoc throughout the county -- he disrupted Humboldt County socially, politically and economically. So many aspects of life here were just thrown into chaos because of his wrong-headedness. It's truly amazing, what one man's greed can do... it's enough to make a grown man cry, what happened."

But even when Pacific Lumber was at its triple-cutting worst, it had lots of local support and its workers appreciated their shares of the profits. Were they complicit? "Most of them were worried about their employment and were promised long-term jobs by PL management - and they were lied to by Hurwitz and top management in Scotia," Bertain said. "And Hurwitz played it all like a fiddle."

Bertain and Cherney are figureheads in the long-running effort to resist Maxxam, but both re-evaluated the struggle. "We, as humans, need to really improve our communication with each other, because activists knew what Charles Hurwitz was going to do, even some of the original employees knew what Maxxam was going to do," said Cherney. "But nobody was able to stop it."

Responsibility for that lies with elected officials who accepted "a failure of public policy," Bertain said. "But I wonder if I, too, should have spoken up more," he added. "Maybe I wasn't loud enough or forceful enough or smart enough... maybe things will get better but it will take a long time and something beautiful was destroyed."