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Seeing the Forest for the Trees
By Jaimal Yogis | Photo: J. Perlman and R. Lutge Photography | September 20, 2010
For 150 years, California redwoods were plundered, martyred, horse-traded, and legislated to the point of near destruction. But now, implausibly, an epic convergence of whistle-blowers, tree huggers, loggers, and a family of billionaire merchants is rewriting the story of some of the world’s oldest living beings.
The acquisition of Pacific Lumber by Hurwitz’s company, Maxxam, was a classic saga of 1980s Wall Street mania. In 1985, leveraged to the hilt with almost $800 million in junk bonds underwritten by securities genius Michael Milken, Hurwitz engineered a hostile takeover. The deal made the smooth-talking Texan the owner of an estimated 70 percent of California’s old-growth redwoods remaining in private hands. But with a massive debt to pay back, Hurwitz set out to reverse decades of good forestry and the excellent employee relations that had been instituted by the Murphy family, who had run the company for almost 50 years.
The Murphys were an anomaly in big timber. They practiced sustainable forestry before there was a name for it, and every Murphy intended for his descendants to work this same land for hundreds of years, as did the family’s hundreds of employees. The Murphys were famous for throwing huge company parties and for providing college scholarships for the children of full-timers. Pacific Lumber workers say that watching them get forced out was like losing their own parents. Though Hurwitz tried for a while to maintain a façade of the Murphy tradition, it soon became clear that he would stop at nothing to satisfy his deep debt. One of his first acts was to drain $55 million from the employee pension plan, replacing it with a shoddy life annuity that eventually landed the employees a mere $7 million (and even that they had to fight for with a lawsuit). He also made clear-cutting and high-grading the norm. “He was taking every salable thing he could get his hands on and going until the roof fell in,” says Wilson. Anybody with eyes could see the new mudslides and the bald spots growing like a disease over the green Humboldt hills.
The sad thing was, it didn’t have to be that way. “In 1985, when Hurwitz showed up, there was enough old-growth timber out there that if the Murphys had kept going at their regular rate, they could have harvested old growth until the year 2045,” says William Bertain, a lawyer in Eureka who won a $162 million settlement from Hurwitz and his financiers after suing them over the details of the hostile takeover. But Hurwitz continued clear-cutting the land, and when Wilson took over California’s forestry department in 1991, he cooked up an idea to require timber harvesters to submit a Sustained Yield Plan, which would analyze the 100-year impact of their harvesting on the local wildlife, soil, and watersheds.
Wilson got the forestry board to sign off on the new rules three years later, and though they came with a number of concessions to the timber industry, Hurwitz felt the threat. In the late ’80s and early ’90s, he’d been logging double the amount that the Murphy family had, getting up to 300 million board feet of wood per year (a board foot is the equivalent of a one-square-foot wood slab, one inch thick), yet still not enough to pay off his debt. So he decided to build a road into the Headwaters Forest—including five square miles of old growth so pristine that many activists considered it sacred—and start salvage logging, which means taking away any trees that are dead or dying or have fallen naturally. This set off alarm bells for the activists, who were afraid that his next move would be to cut standing trees, so that’s when they started showing up en masse. Multiple lawsuits were filed against Hurwitz and Pacific Lumber by everyone from the Sierra Club to longtime residents who had lost their homes in mudslides.
That’s also when Wilson began hearing talk of a deal going on way over his head—all the way up to then president Bill Clinton—that was supposed to accomplish two things Wilson desperately wanted: to save the Headwaters old growth and to get Hurwitz to comply with Wilson’s new sustained-yield rules on the other 97 percent of his land. The Clinton administration had appointed senator Dianne Feinstein as chief negotiator of the deal. Over the next five years, the deal became a plan for the state and federal governments to pony up $300 million to Hurwitz for 7,500 acres of land, including the 3,088 acres of Headwaters old growth. Hurwitz would also get an additional $106 million for two other parcels adjoining the Headwaters.
At first, Wilson was open to the plan. But as the details began to emerge, it started to seem more like “a load of crap,” he says. For one thing, Hurwitz had paid only about $800 million for the entire 211,000 acres, and here was the government offering more than half of that for less than 5 percent of that land. There were also big questions about how much Hurwitz would actually dial back his logging on the land he would still own. He insisted that harvesting upward of 210 million board feet per year was a sustainable yield, but Wilson didn’t want to go above the rate at which the Murphy family had been cutting, given that Hurwitz had already been depleting the forest at double that rate for at least a decade. “I hadn’t seen any hard science to back up anything close to 200 million board feet per year,” he says. Meanwhile, protesters were going ballistic in the hills—Hill perched in Luna in 1997, and Chain died in 1998—and Hurwitz, ever the Machiavelli behind this mess, kept threatening to walk away from the deal and keep clear-cutting if he didn’t get his way.
The cut rate that Hurwitz and the federal politicians eventually agreed on was 179 million board feet per year for the first decade after the signing. Pacific Lumber lawyers told Wilson that the number was based on a computer model created by a private company named Vestra Resources, but oddly enough, Wilson couldn’t get his hands on the report, even though he directed the most important timber-regulating body involved in the deal. Pacific Lumber claimed that the report was proprietary. Still, Wilson was getting leaned on to sign. “The politicians’ view of this was, ‘Let’s close; let’s get the Headwaters deal in our legacy and go do something else,’” Wilson says. “If I had had something to hang my hat on to stop it, I would have, but I just didn’t.” So on March 1, 1999, the very last day before a midnight deadline, he reluctantly signed off on the Headwaters Forest Agreement, joining President Clinton, Vice President Gore, Senator Feinstein, Governor Davis, Interior Secretary Babbit, and representatives from almost every environmental regulatory body in the state.
From the way the other signatories hailed the Headwaters deal, you’d have thought it was the best thing ever to happen to the redwoods. “This historic agreement will ensure the protection of one of the world’s most precious resources,” said Governor Davis. “The final agreement is truly a compromise,” said Pacific Lumber president and CEO John Campbell, who got into the timber business after he married a friend of the Murphys’, then decided to stick with Hurwitz after the takeover. Feinstein added that she was very proud of forging ahead against all odds: “Getting to this point has not been easy,” she said. “It has taken over five years of negotiations…and literally thousands of hours…[but] the end result is a strong plan.”
Wilson, however, resigned shortly after and continued to feel bad about the deal. He remembers the day it was celebrated in the brand-new Headwaters Forest Reserve. “It wasn’t a very good day,” he says. “It was cold and rainy, with mud sloshing around.” It wasn’t just the weather that got him down, though; he shakes his head as if he wants to say more but doesn’t. When I ask him if he resigned out of guilt, he shrugs. He chalks it up to not wanting to work with the Gray Davis administration, or he says that he’d been with the department long enough. But his actions in ultimately exposing the deal as a sham suggest a different story.
The initial revelations about the deal weren’t encouraging. Within a month of the signing, the Environmental Protection Information Center (EPIC) teamed up with the Sierra Club to sue the government for failing to obtain an adequate Sustained Yield Plan from Hurwitz. As the lawsuit unfolded, it came out that there had never been such a plan, either before or after the deal was signed. The case went all the way to the California Supreme Court, where EPIC and the Sierra Club finally won in 2008. In Feinstein’s “five years of negotiations,” the court found, the government had never bothered to require backing for the linchpin of its deal.
“Here you have half a billion dollars in taxpayer money,” says Sharron Duggan, one of the lead attorneys for EPIC and the Sierra Club in the case. “It’s supposed to be buying us peace in the valley, and to not have the singular document you need to enforce the new rules—it’s like building a house without any blueprint. Pacific Lumber and Hurwitz were only as terrible as the government let them be.”
Even after getting the $406 million in taxpayer money, meanwhile, Hurwitz still owed more than $700 million to the bondholders. By 2001, two mills had been shut down; Pacific Lumber would soon slim down to 363 workers from its high of about 1,600. Wilson had a hunch that the company might go bankrupt, but in 2006, he got a phone call from a friend that would help him push Pacific Lumber to the brink.
The friend told him that Wilson’s old department had hired a new “sustained-yield forester” whose job it was to implement Wilson’s 1994 rules: Chris Maranto, a rising star in the complicated world of forest computer models. Bingo, Wilson thought—here’s a guy who might actually know something about the Vestra report’s key assumptions. (Remember, Pacific Lumber used computer modeling to come up with its cut rate of 179 million.) So he decided to give Maranto a call. “I said straightaway, ‘I now think the Headwaters deal was flimflam and politics, a scam,’” Wilson says. To his surprise, Maranto completely agreed. What’s more, he had something concrete to go on. After walking around an additional 8,000 acres that Pacific Lumber had purchased since the deal, Maranto had come to the conclusion that the company had padded its numbers in trying to persuade the government to let it log at a higher rate.
Here’s how Maranto and Wilson thought the book-cooking worked. The cut rate that Hurwitz had requested in the government negotiations—210 million—was based on a particular number of trees. But on the acreage he surveyed, Maranto says that he didn’t find anything close to the number of redwoods the company had told the government it had. He soon learned that Pacific Lumber had included a second tree in its computer modeling for all of its holdings: tan oaks, which are almost never used to show merchantable inventory because they’re more like weeds. So he concluded that the company had deliberately inflated its inventory with tan oaks—there was no other way to explain what he had witnessed on the ground. “When I saw the model, I couldn’t believe it,” says Maranto, who still works at the department as its sole sustained-yield forester. “It was just so blatantly wrong.”
Wilson instantly realized that he could have a fraud case on his hands. Maranto was reluctant to get involved, out of fear of losing his job, but he had such respect for Wilson’s work that he figured he could get behind it if Wilson were with him. After much discussion, Wilson and Maranto contacted San Francisco plaintiff lawyer Joseph Cotchett, known as one of the best in the country. Cotchett’s firm—Cotchett, Pitre & McCarthy—had already been approached by numerous groups, including some Native American tribes, who wanted to sue Hurwitz over alleged environmental and financial violations. Maranto’s evidence finally gave the firm the case it needed in order to nail Hurwitz with huge damages.
The case wound up as a qui tam trial, or a whistle-blower case: Wilson and Maranto suing on behalf of the people of the United States and California, who, they argued, had been defrauded out of nearly half a billion dollars in taxpayer funds. It was filed in a federal court in Oakland, but Hurwitz and Maxxam, using their own high-powered Bay Area law firm, Morrison Foerster, led by trial-court celebrity James J. Brosnahan (defender of John Walker Lindh), did everything possible to delay the case. Hurwitz spent more than $10 million in legal fees to keep the case out of court, all along denying any wrongdoing and arguing that the government had gotten exactly what it asked for: the Headwaters Forest Reserve and a promise that he’d log his remaining land at 179 million board feet or less. “That makes it a very strange sort of federal fraud case,” Brosnahan told the San Francisco Chronicle before the trial.
The case wouldn’t be heard in the Oakland court until 2009, but in the meantime, in Corpus Christi, Texas, Pacific Lumber had indeed filed for Chapter 11. And, surprisingly early in the proceeding, the judge made the bankruptcy trial nonexclusive, opening up Pacific Lumber to purchase and reorganization. Almost simultaneously, in two separate courtrooms, the truth about the Headwaters horse-trade—and the future of the California redwoods—would be revealed.