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Hippies Best MAXXAM on the North Coast

Once in a while, the people win one. And while the successful effort to beat back a recall of a District Attorney is an improbable example of a People’s Victory, just that happened recently in California’s Humboldt County. From a confluence of environmental activism, a multinational’s junk bond-financed takeover of a local firm, the public good vs. corporate lying and a DA with a dedication to “equal justice under the law,” we have not just an improbable victory, but a nascent paradigm shift in part of what was once an integral cog in the Resource Extraction West.

Elected in 2002, Paul Gallegos, 42, is the District Attorney of Humboldt County, CA. Upon taking office in January 2003, Gallegos wasted no time in advancing a Civil Fraud lawsuit against Pacific Lumber Company, a subsidiary of multinational giant MAXXAM. With the statute of limitations clock ticking, Gallegos huddled with top assistant Tim Stoen and decided to file the suit. He said at the time and since, “I couldn’t live with myself if we didn’t go forward.”

MAXXAM/PL immediately funded another California Recall effort against the new DA. Ultimately the timber giant put over $300,000 into the Recall according to a required accounting for the Humboldt County Elections Office. In character, PL admitted to just $40,000 in a company letter to employees. That was offset by $270,000 raised by the Friends of Paul Gallegos, making it by far the most expensive election in the small county’s history. The mostly volunteer effort — hundreds volunteered — raised that $270,000 from over 3500 donors. Over 50,000 voters (a rarely seen 63 percent of the electorate) turned out and rejected the Recall by a margin of 61 – 39 percent. A mere 30,000 voted in the 2002 election in which Gallegos upset twenty year incumbent DA Terry Farmer by a much smaller 52 – 48 percent margin despite Farmer’s endorsement from the state’s attorney general.

Can you say Public Mandate?

The Setting

Prior to Europeans arriving in the area, two million acres of Redwoods once covered the North Coast of California and Southern Oregon. The coastal Redwood (Sequoia sempervirens) is the tallest of evergreens, some growing to a diameter of 25 feet and a height of over 350 feet. The trees are naturally resistant to fire with diseases virtually unknown and insect damage insignificant thanks to the high tannin content of the wood. With thick bark and with branching and foliage starting high off the ground, the coastal Redwood is safe from all but the hottest fires, hence “sempervirens,”- ever-green.

Today there are about 80,000 acres (4%) of the original Ancient Forest remaining in state and national parks, some in stands themselves in severely fragmented condition.

Humboldt County covers 2.3 million acres along California’s North Coast. About eighty percent of the landbase is forested, most either protected, as in the parks, or industrial lands owned by timber firms. About 130,000 people live in the county which has seen a growth rate of 20 percent per decade the past forty years. Thirty-five thousand folks live in Eureka — its county seat and largest city. The county endures a persistent unemployment rate over seven percent.

Pacific Lumber Company, headquartered in nearby Scotia, owns a total of 210,000 acres of Redwood and Douglas fir forests in Humboldt County. Pacific Lumber once was the county’s largest private employer, employing 1500 as recently as 1997. Current economic data show that less than 600 are still employed by the firm as it continues to lay off workers and out source work to other contractors.

Junk Bonds, Looted Pensions and Ancient Forests

In October 1985, junk bond king Charles Hurwitz’s global corporation MAXXAM took over Pacific Lumber with a $900 million deal that saw the notorious Ivan Boesky pocket $3 million. Boesky later, along with Michael Milken and broker Boyd Jeffries, was convicted and sentenced to two years time in federal prisons. PL’s Directors were given hundreds of thousands as a result of their vote for the takeover.

MAXXAM quickly sold off many PL assets – Victor Welding Co. ($300 million); the San Francisco Pacific Lumber building ($35 million); and $55 million of PL’s workers’ pension funds was looted. The remaining $35 million in the pension fund was transferred to Milken’s aptly named Executive Life Insurance, which then went bankrupt. Executive Life had purchased $300 million of PL junk bonds at the time of the takeover. PL’s workers and the US Department of Labor sued MAXXAM successfully and got the pension funds restored.

From 1982-1988, Charles Hurwitz was the CEO of United Financial Group, the holding company for the United Savings Association of Texas. During that time the Savings and Loan (S&L) lost over $1.6 billion of depositors’ money. The lawsuit that saw Milken plead guilty to mail fraud and other crimes (FDIC vs. Milken) showed that money from the S&L was diverted into the PL takeover. Hurwitz still owes the government $1.2 billion as a result of the collapse of the S&L.

Immediately upon the takeover, PL tripled the rate of logging; liquidating over 100,000 acres. MAXXAM has refinanced PL’s debt several times. In 1998, PL collateralized $860 million of debt with Timber Bonds and now owes approximately $735 million — just $15 million less than it owed in 1985. Which means that despite all the logging, the selling off of assets AND the public’s purchase of 7500 acres for the whopping sum of $480 million, the company is worth pretty much the same now as at the time of the takeover.

According to the company’s 10-K filed the end of March 2002 operating income was $45 million (up from a loss of $11 million in 2001), on production of 213 million board feet (up from 160 mmbf in 2001). “Downsizing” hundreds of jobs and closing antiquated mills (with the 10-K predicting more), in addition to the increased logging, led to the restored profitability.

Degradation

All this increased logging has led to major catastrophes. The Elk River which runs through PL lands once had a major native Coho Salmon run. As recently as 1995, 500 Coho spawned there. By 1998, after intensive logging, the number was down to 30.

On December 31, 1995, a landslide blasted down off of a steep PL clearcut and wiped out seven homes in Stafford, CA and damaged dozens of others.

From 1995 – 1998, PL committed over 250 violations of CA’s Forest Practices Act. It has lost numerous lawsuits over violations of the Endangered Species Act (ESA), the California Forest Practices Act and other environmental protection laws.

Twice in the late 1980s the California Department of Forestry suspended PL’s timber cutting license after more than 100 violations — e.g., cutting during wet weather and failing to control erosion.

After years of activist pressure opposing this wreckage, in March of 1999, the Headwaters Agreement was signed with the public paying $480 million for about 7500 acres of MAXXAM/PL’s 60,000 acre Headwaters Forest. Five groves — including the two largest, privately owned old-growth groves — were transferred from Pacific Lumber Company/MAXXAM to the State of California. The two ancient groves were permanently saved from the saws; the others are supposedly safe for 50 years, though logging has since occurred on the fringes.

Fighting Back

The basic claim of the DA’s Fraud Suit, brought under the Business and Professions Code Section 17200, is: during the run up to the Headwaters deal, Pacific Lumber told the government in its required Environmental Impact Report (EIR) that 15 percent of landslides in the watershed occurred during recent cutting. The truth is that over 60 percent of the landslides occurred as a result of the logging.

This lie understating the threat of landslides allowed PL to advance a Timber Harvest Plan (THP) allowing the company to cut at higher rates across its holdings in Humboldt County. The post-1999 over-logging has resulted in more serious flooding — on some rivers floods worse than any in memory. The false data also allowed for the company to argue successfully against watershed mitigation requirements.

“These acts of logging resulted in major landslides causing destruction to ancient redwoods, serious harm to Humboldt Bay and serious harm to streams, bridges, roads, homes and property rights of the people of Humboldt County,” the suit reads. Gallegos noted, “Ultimately, this is lying for profit. It’s greed. It’s greed over the interests of the people of this community.”

Gallegos, a champion of equal treatment under the law, also wrote, “It has been suggested that we should not have filed this case against the biggest business in Humboldt County. This suggestion is troubling and perplexing; as it implies that we either do or should have different rules for people based on their wealth or political power. Clearly, this cannot be.”

At the last minute, PL admitted the figure was incorrect, but sent a revised version to an obscure PL-friendly local forestry office in a deliberate attempt to avoid review by the proper authorities — state officials in Sacramento.

The suit seeks a $2500 civil penalty for every tree cut on the disputed parcels covered by the 10-year Logging Plan. Over 30,000 trees have been cut, meaning that the timber giant could be liable for as much as $75 million in penalties (up to 100,000 trees and $250 million by some estimates).

The $64,000 Question

In addition, one would think that the entire $64,000 per acre sweetheart Headwaters Deal, based on lies and deceit, should also be reopened.

Some have long suggested that PL’s entire assets should be seized as compensation for the FDIC bailout of Hurwitz.

A Right to Lie?

MAXXAM/PL filed a demurrer motion April 1st asking that the lawsuit be dismissed. On April 30th, a court ruled the case could go forward with minor revisions.

Perhaps the most interesting reasoning PL raised for having the case thrown out is: “Plaintiff alleges Pacific Lumber engaged in wrongful conduct by providing the government misleading information as to the effects of its timber operations by promoting its objectives in the Headwaters agreement. Such conduct is protected under the First Amendment and the Noerr-Pennington Doctrine and cannot serve as a basis for liability.”

To which the DA has noted, “Their position is, they are allowed to lie.”

PL attorney Edgar Washburn has asserted that the Doctrine cited applies even if the company did lie. He insists they did not.

Behind the Recall

The PL front group behind the Recall started out as the “Committee to Recall Paul Gallegos.” After bringing in slick, high-priced downstate PR flacks, the name quickly changed to “Safety Yes! Recall Gallegos.”

The recall campaign was originally headed up by Rick Brazeau; the same political consultant who ran Farmer’s losing effort. The recall’s legal advisor was Tom Herman, a former PL vice president. Seed money came from a number of retired timber company executives.

As the Republican assistant DA Stoen noted, “Pacific Lumber knows the only way they are going to get me off the case is to get rid of my boss.”

All sorts of shenanigans took place during the run-up to the Recall vote. Gallegos house was broken into twice. Confidential documents were stolen from the DA’s office. The documents then ended up in the hands of Safety Yes! They also were given to two of the three candidates on the Recall ballot for replacement DA.

Safety Yes! made all sorts of bizarre charges against the DA. “Soft on crime” was leveled, though with the new DA having been in office less than six weeks, it’s hard to see how one could divine any such pattern. In fact, the very fact that he filed the suit belies the charge.

They even stated that “Gallegos associates with criminals like Chompers Cook, who is a felon with a rap sheet seven pages long.” Cook, a fifth-generation rancher/logger, courageously appeared in one anti-recall ad despite his having been cited by the DA’s office and paying fines related to some minor logging violations — “crimes” that pale compared to PL’s total of over 600 violations of the Forest Practices Act, 220 Water Quality violations, not to mention, the Milken/Boesky convictions.

Safety Yes! is under investigation for multiple Fair Political Practices Commission violations related to signature gathering and campaign disclosure rules.

People’s Victory

On March 2, 2004, those 50,000 voters spoke loudly about corporate malfeasance. On April 30th, some 400 supporters of all ages and various backgrounds gathered at the River Lodge in Fortuna to celebrate and help retire the campaign’s debt. Local small business supporters catered a dinner and provided refreshments.

The “Democracy Rocks On” event produced a fine night of music, performance art and, of course, many speeches in honor of such a victory. A heartfelt standing ovation rang out for Paul and Joan Gallegos as they stood before the empowered citizenry.

Eureka mayor Peter La Vallee noted, “We learned here that Democracy works; that corporations can’t buy their way out of wrongdoing; and, you can’t remove someone from office just because you don’t like what they have to say.”

The much relieved, youthful DA added, “What we learned here, I hope, is if we work and sacrifice for Democracy, it will work and sacrifice for us.”

MICHAEL DONNELLY, of Salem, OR has taken the advice of his longtime friend Mike Roselle and is traveling this summer outside the I-5 “car-shed” –one of Mike’s fine observations — people in the US no longer are defined by watersheds, but “car-sheds.” Michael will continue to report back on the changing face of the American West.

He can be reached at: pahtoo@aol.com