July 24th 2008

By Hank Sims

The North Coast Journal

July 24, 2008

It came in with a bang, but it's ending with a whimper. That's the story of the maximally important Pacific Lumber bankruptcy case, which has offered the county one of the greatest moments of crisis and opportunity in its recent history. The danger, back in January 2007, was that Houston sneak Charles Hurwitz and his Maxxam Corp. would somehow be able to hold on to the company's assets, despite having driven the once-proud company into the ground, and thereby preserving the county in Timber War stasis for another God-knows-how-many years.

But though Hurwitz performed a few audacious pirouettes for the first 12 months of the case, eventually he took his bow, and retired from the stage with low marks from the judges. A few months earlier, the Mendocino Redwood Company, owned by the Fisher family of San Francisco, entered the fray, and quickly consolidated the county's near-universal opinion in favor of its promised low-impact, sustainable logging plan. Now Mendo Redwoods is poised on the cusp of victory, with the keys to the company all but in its hands. (Strangely, this at a time when the Fishers' original company, The Gap, is packing up shop in the Bayshore Mall.)

The deal isn't done yet. Still clinging to the company's skirts are the Pacific Lumber "bondholders," that owns the mortgage on Pacific Lumber's timber lands. The bondholders, now led by Hurwitz's fellow Texas financier, poker champ Andy Beal, are insisting that Corpus Christi bankruptcy judge Richard S. Schmidt erred when he confirmed Mendo Redwood's recovery plan rather than their own. They're still arguing for a sale-at-auction of Pacific Lumber's land assets as the only way to garner the return on investment that they insist is their due, and they had formed an alliance with Redding timber mogul Red Emmerson, who expressed an interest in Pacific Lumber's Scotia mill.

The clock is tick-tick-ticking down for the bondholders, though. They've filed an appeal of Schmidt's decision, but the temporary stay-of-judgment on Mendo Redwoods' takeover of Pacific Lumber is now set to expire on Friday. They've scrambled to get the stay extended, but to no effect. Schmidt declined to extend it. On Monday, a Schmidt colleague on the federal bench in Houston said that he would not extend it either. The Fifth Circuit Court of Appeals is the bondholders' last hope, and they have just hours to secure a ruling.

Because though the Fifth Circuit may accept the bondholders' appeal, it'll take a long, long time for the case to be heard. Without a stay, Mendo Redwoods takes over very, very soon. And everyone pretty much agrees that even if the bondholders eventually meet with sympathetic ears at the appellate court, there's probably not a court in the world that would order Mendo Redwoods to surrender Pacific Lumber once it has taken possession. That would be a logistical and legal nightmare, and there's not a prudent jurist in the world who would want to touch it.

So it appears that we will know the final answer by Saturday. And then the $700 million question. Mendo Redwoods has built up a lot of political capital in the county in a very short time. It will be interesting to see how they go about spending it.