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Pacific Lumber Gets Itself Out of $1 Billion Federal, State Lawsuit over Fraud; Maxxam and Charles Hurwitz Remain as Defendants

http://news.moneycentral.msn.com/ticker/article.aspx?Feed=AP&Date=20080211&ID=8115187&Symbol=MXM

2/11/2008

WASHINGTON (AP) - Pacific Lumber Co. has reached a major settlement in its bankruptcy case allowing it to walk away from two lawsuits demanding $1 billion in damages for allegedly defrauding the state of California and the federal government.

The settlement, which requires court approval, would wipe out $1 billion in potential claims that were threatening Pacific Lumber's Chapter 11 reorganization. The deal was made public in documents filed Friday with the U.S. Bankruptcy Court in Corpus Christi, Texas.

The lawsuits stem from a 1999 logging pact Pacific Lumber company negotiated with California and the United States. Two California forestry officials sued Pacific Lumber and its parent, Maxxam Inc., in December 2006, accusing the companies of defrauding taxpayers.

While the claims against Pacific Lumber will be dropped, the two lawsuits -- one in a California state court and another in federal court -- will go forward against Maxxam and its chairman and Chief Executive Charles Hurwitz.

An attorney for the plaintiffs declined to comment on Monday. A spokesman for Maxxam could not be reached for comment.

Pacific Lumber is asking the court to sign off on the settlement, saying it eliminates costly litigation that threatened its bankruptcy case.

The company, based in Scotia, Calif., said in court papers that even if the plaintiffs were "modestly successful" in asserting their claims, a claim for any amount "could prevent the feasibility of any Chapter 11 plan and thereby doom" the company's reorganization.

Under the settlement, the claims filed against Pacific Lumber will be resolved for $1. Pacific Lumber will eventually be dismissed from the state and federal lawsuits, according to court documents.

Pacific Lumber, which owns more than 200,000 acres of timberlands in northern California, has been in bankruptcy since January 2007. It has filed a plan to repay creditors by selling and developing some its timberlands, but it is also facing competing plans filed by two other creditors -- the Bank of New York Mellon Corp. and hedge fund Marathon Asset Management.

In 1999, Pacific Lumber and Maxxam finalized the so-called Headwaters agreement with California and the federal government. Under the deal, Pacific Lumber sold 5,600 acres of redwood trees for $380 million. The company also won approval for a sustained yield plan, or SYP, that would regulate logging on its remaining land.

Richard Wilson, the former director of the California Department of Forestry and Fire Protection, and Chris Maranto, another forestry official, sued on behalf of the state and federal government, claiming Pacific Lumber and Maxxam used fabricated data to win approval of the deal.