The Court-Approved Lies of Charles Hurwitz
Senior North Coast attorney Jared Carter’s insider influence has left grimy fingerprints all over the recent Humboldt County Superior Court decision to dismiss the Humboldt County DA’s fraud case against Pacific Lumber.
Humboldt County District Attorney Paul Gallegos and his assistant Tim Stoen had charged PL with intentionally filing fraudulent information about the condition of their forests with the government during the Headwaters Forest negotiations which lead to PL being able to profitably cut a lot more trees than would have been allowed if they’d been truthful.
However, visiting retired Lake County Judge Richard Freeborn ruled in Humboldt County last week that it’s ok for Pacific Lumber to lie to regulators and government officials and therefore no fraud exists — comparing PL’s official filings to "lobbying" which gives the company first amendment free speech rights which include the right to lie.
Jared Carter, the former highly placed Nixon administration official, has been PL’s legal eminence gris for years and has been earning his high pay by manipulating the legal system for his corporate raider boss, Charles Hurwitz. Hurwitz, you may recall, is the Texas financier who made a killing in the aftermath of his United Savings and Loan $1.6 billion failure and taxpayer bailout, then leveraged the profits and some junk bonds to engineer a hostile takeover of Pacific Lumber in the late 80s. Hurwitz cleverly saw that the Murphy family, who then owned Pacific Lumber, had used sustainable logging practices for decades leaving them with lots of valuable trees — aka cash-generating assets — in the upright position.
After the hostile takeover, Hurwitz then hired a variety of highly placed professional Democrats like Stuart Eisenstat, and former local Congressman Doug Bosco, to engineer a top-dollar buyout of the 7,500 acre core of his holdings, the so-called Headwaters Forest. After years of hardball negotiations, Hurwitz and the Democrats successfully convinced the Clinton Administration and then-Interior Secretary Bruce Babbitt to appoint Senator Dianne Feinstein as the negotiator of the Headwaters deal. Feinstein, whose husband, Richard Blum, is himself a fellow corporate financier of Mr. Hurwitz’s acquaintance, duly cut a deal with federal and California state Democrats for about $750 million, almost all of which went directly into Hurwitz’s personal Texas accounts, not to the Humboldt County timber operation. The Headwaters Forest, by the way, home to the endangered marbled murrelet and Northern spotted owl, could have been preserved if the Democrats had simply enforced the endangered species law that was in place at the time that Hurwitz acquired Pacific Lumber, thereby saving the taxpayers $750 million, but that’s another story.
While the Democrats were busy arranging the Hurwitz giveaway, Hurwitz himself was busy breaking up the company into three separate parts: Headwaters Forest, the PL mill and town of Scotia, and the rest of the 200,000 acres of mostly cut over forest. This was the little trick that made it possible for Hurwitz to pocket the Democrats’ $750 mil in tax dollars himself, leaving the timber company with cut over holdings and a lot of the remaining junk bond debt that Hurwitz had incurred when he took over the company.
In the past, Jared Carter has asserted that ordinary regulation is a constitutional taking (it’s not) requiring taxpayers to fork over big bucks if they impose any regulation on a company — even the regulations that were in place before they violated them — and that public input is irrelevant and should take a back seat to such "laws" as the bogus "Noerr-Pennington Doctrine."
Judge Freeborn, an obviously PL-friendly retired Lake County judge, was conveniently assigned to the PL case and quickly (by legal timing standards) told Gallegos and his prosecuting deputy Tim Stoen to pound sand. I suppose there’s some chance that Judge Freeborn never met Jared Carter, but almost every right-wing lawyer on the North Coast considers Carter to be their grand mentor.
There have been several news accounts of Judge Freeborn’s decision, but only the Santa Rosa Press Democrat’s reporter Mike Geniella quotes Carter, carefully avoiding mention of the it’s-ok-to-lie legal doctrine (the "Noerr-Pennington doctrine" — a derivative of the corporations-are-people theory in which corporations enjoy the same Constitutional protections as people).
Carter told Geniella that DA Gallegos’ case was purely political, referring to Judge Freeborn’s description of the case as "contrived" and "a stretch." But Carter/Geniella never mention the key Jared Carter-style legal concept Freeborn based his decision on. Apparently, then, only liberals care if a company lies to government agencies.
Martha Stewart found out that lying to authorities was so bad that she went to jail for it, even though the government had previously dropped the insider trading charges she had supposedly lied about. Ordinary people can’t lie to the cops — that’s a felony. (Maybe you can try explaining to the judge that you were simply "lobbying" the cops as is your right under the First Amendment.)
Gallegos’ case had been allowed to go forward by a previous (native) Humboldt County judge who was apparently too PL-friendly for the Humboldt County DA’s office as well. Judge Freeborn took over the case in 2003 when Judge Richard Wilson recused himself from the case after a motion was filed by Gallegos questioning Wilson’s ability to be impartial. What’s not explained, of course, is how Judge Freeborn came to be assigned to the case after Judge Wilson.
Pacific Lumber had been trying to recall Gallegos and to get the courts to toss the case for years. Of course, PL insists that it hadn’t lied, but that "even if it had made misrepresentations to get logging plan approvals, the firm was protected from civil liability." (The lies have now morphed into "misrepresentations.") But if PL hadn’t lied, why did they even bother to bring up the "we can lie" theory?
No other news accounts of the PL ruling mentioned Jared Carter, choosing instead to quote PL press flak Chuck Center who, of course, was giddy with delight.
In fact, Geniella’s PD story — as supplied by Carter — about Freeborn’s decision gave a very misleadingly ordinary sheen to the ruling to their large northcoast readership, leaving out several important points such as:
* Gallegos is seriously considering an appeal, saying last week:
"The judge sent a signal that Pacific Lumber is totally immune from lying. People out there are getting permits all over the place, thinking they have an obligation to tell the government the truth. This is not the law, in my opinion, and if am wrong, it is an outrage because it rewards deceit."
* PL spearheaded an unsuccessful attempt to have DA Gallegos recalled.
* The previous judge, who DA Gallegos was trying to have replaced for apparent bias as well, had ruled that the suit could go forward and that Noerr-Pennington didn’t apply.
* Judge Freeborn asked PL to submit their own PL-friendly judgment for him to sign rather than even writing his own judgment. It’s not clear why government agencies don’t put some kind of Noerr-Pennington protection clause into their boilerplate paperwork that requires the submitter to swear that everything they’ve submitted is true and correct to the best of their knowledge, and failure to do so subjects the submitter to fraud prosecution. You’d think that any self-respecting government agency would include such a standard provision.
* * *
In a related matter, the State Water Resources Control Board recently denied, at least temporarily, PL’s appeal of an earlier decision to deny several PL timber harvest plans in the Freshwater and Elk Creek watersheds in Humboldt County because of inadequate run-off control (which has caused landslides and river siltation which in turn have damaged the homes and water sources of a number of PL’s rural neighbors. In an unusually strong anti-PL ruling, the Water Board said that no harvest plans would be approved until a silt management plan was in place.
According to one uncommented account of the Water Board appeal, PL officials reportedly told the Water Board — with a straight face — that the watershed damage that created the problem was "mainly a result of logging by former owners of Pacific Lumber and is being repaired"!
This is an outrageous attempt at historical revisionism since no one (outside of PL) disputes that the present owner increased the rate of cutting by upwards of three times from the rate of the previous owners, the Murphy family, whose sustainable logging practices were the model of the timber industry. Hurwitz’s orders to triple the cut to pay off the junk bond interest stripped the forest floor of its stabilizing trees, among many other damaging effects.
When Pacific Lumber’s latest batch of timber harvest plans were denied or cutback, PL threatened to file for bankruptcy if they can’t cut all the trees they want. But there’s a good deal of evidence that financier Hurwitz intentionally put his own company, Pacific Lumber, into a financial condition that effectively forces his own company into bankruptcy.
How could he do it?
For a glimpse of the kind of personally profitable financial arrangements Hurwitz routinely makes, we can look at Water Board Staffer Michael Gjerde’s recent analysis. Gjerde is professional geologist with a master’s degree in economics who prepared a response to PL’s economic hardship claims. Gjerde used publicly available documents for his analysis and includes a caveat that he could be more sure of his conclusions if he had access to PL’s and Maxxam’s books. (MGI and MGHI are Maxxam subsidiaries.)
"The average interest rate was lowered in [PL's] 1998 refinancing, to around 7.43%, but the total long-term debt was again increased to $867 million dollars. PALCO asks in its White Paper, ‘Was a Profit made’ from this refinancing? Their claim is no, and in the literal sense this is true.
Most of the refinancing amount was used to pay off old debt: that in Scotia Pacific [one of the several artificial corporate subdivisions created by Hurwitz], that in PALCO (all long term debt paid off) and that in MGI. Note that $226.7 million in MGI debt was paid off in 1998, taking the 1993 MGI refinancing off the books and making that money free and clear to MAXXAM [Hurwitz]. Either you count the initial 1993 bond money as payment to MAXXAM or the retirement of the debt as a benefit to MAXXAM in 1998. Either way it was a clear $225 million that MAXXAM extracted from PALCO. In 1998 an additional $14.7 million was paid from MGI up to MAXXAM, and this I would certainly consider a profit though hidden through multiple company dividends. Again, the PALCO companies were left with over $868 million in long-term debt, meaning that no long-term debt was paid off in the previous five years and keeping the company as leveraged as ever. Meanwhile MAXXAM could be considered to have received at least $241.4 million, counting the 1993 MGI bond money of $226.7 million that was paid off by assets from PALCO in 1998 and dividend payment of $14.7 million from MGI to MGHI."
And those millions are over and above the $750 million Headwaters taxpayer cash-out.
And this was after Hurwitz famously raided the PL workers pension fund to make the first payments on the junk bond interest.
Pretty neat, you’ve got to admit. Hurwitz essentially transferred all the junk bond debt he had incurred in buying the company from himself to the beleaguered company, then proceeded to use ill-gotten company proceeds to pay off his junk bond interest at usurious rates, knowing that as long as the company paid the interest on the junk bond loans, he could always close up shop and sell the remaining company assets to cover the principle — with another big profit.
Which, by the way, is underway. Hurwitz announced last week that he’s putting the famous old company town of Scotia on the market. So it won’t be long before he puts the modernized mill up next (paid for out of PL profits), especially if the State Water board doesn’t give PL permission to cut what they want after the silt study is complete.
Anybody who believes anything coming out of Hurwitz’s mouth, or who still thinks that Hurwitz has any interest in the workers, the forests or the people of Humboldt County deserves whatever they get. Or, in this case, what they don’t get.
MARK SCARAMELLA is the managing editor of the Anderson Valley Advertiser.