February 22, 2007

Hanging on the telephone

by HANK SIMS

Let it not be said that there is no good coming out of the Pacific Lumber bankruptcy hearings currently underway in Corpus Christi, Texas. Yes, severance packages for laid-off employees have been frozen. Yes, around 3,000 people or business entities, a good number of them local, have been stiffed out of money owed them by the timber giant, at least for the time being. Yes, Palco's parent, the Houston-based Maxxam Corp., has deployed a crafty two-front strategy to stiff all its creditors. But why focus on the negative? People have asked me that.

So let's get right to the happy news. On Thursday, Maxxam bankruptcy attorney Harlin C. Womble (of Jordan, Hyden, Womble, Culbreth & Holzer, Corpus Christi) made a plea to the court -- please, he asked Judge Richard S. Schmidt, please lift the $10,000 per month salary cap you have imposed on Pacific Lumber employees while the bankruptcy proceedings are underway. Not in every case, mind you -- just in the case of Palco CEO George O'Brien, Vice President Gary Clark and General Counsel Frank Bacik.

When you think about it, $10,000 per month amounts to only $120,000 per year. Figuring it another way, it amounts to a paltry $62 per hour, more or less. Womble warned that if it could only offer its key players such meager sums, there was a danger that the failed company might not be able to keep the team together in the busy months ahead. He made an analogy to the court's previous unfreezing of payments to "critical vendors" -- company contractors who provide services essential to the company's continued operation. "If there is a critical vendor, it is our current management," he said.

Well, here's the heartwarming part: Schmidt agreed to lift the cap in those cases. O'Brien, Clark and Bacik are now back up to pre-bankruptcy wages. They will once again be able to put food on their families.

What a shame that Thursday's hearing couldn't have ended on that inspirational note. Alas, the tedious business of dismembering the 130-year-old company had yet to be dealt with, so everyone dried their eyes and got on with it.

The principal task before the court Thursday morning was to deal with motions brought by the California State Attorney General's Office and a committee of people and businesses to whom Pacific Lumber owes money, both of which are asking to have the case transfered to California. The nut of their argument hinges on "Scotia Development," the diaphanous company that Maxxam invented last year. The existence of this so-called firm is Maxxam's sole justification for holding the bankruptcy on Maxxam CEO Charles Hurwitz's home ground in Texas, approximately 2,000 miles from Pacific Lumber's place of business. (See last week's "Town Dandy," in case you missed it.)

After some wrangling, Judge Schmidt set a date -- March 5 -- for a mini-trial on the question of whether or not to order the case moved to Northern California. The mini-trial is expected to last a couple of days. Before that, there will be a period of discovery, in which evidence for the existence or effective non-existence of "Scotia Development," which has no bank accounts and only a "phone booth" office in downtown Corpus Christi, is gathered.

Therein lies the rub, at least for the people who would like to see the case come home. Theoretically, if two sister companies in different locales go bankrupt at the same time, both companies can file for bankruptcy together in either district. But the key allegation in this case is that Harlin C. Womble and his colleagues "manufactured venue" by inventing the false-front "Scotia Development" firm. "Manufacture of venue," apparently, is frowned upon. The pro-California faction has shown that "Scotia Development" was invented after Maxxam contacted the Jordan, Hyden, Womble firm; that the office housing "Scotia Development" was rented from another Jordan, Hyden, Womble client; and that the only two pieces of business the company ever did (amounting to $10,500) were also done with Jordan, Hyden, Womble clients.

So the pro-California team would like to depose Jordan and/or Hyden and/or Womble to find out more about how this interesting state of affairs came to be. At Thursday's hearing, Womble sweetly told the judge that he and his colleagues would be happy to sit for a deposition and answer whatever questions their opponents had about "Scotia Development," to the best of their ability.

Of course, he added, there was the question of the attorney-client privilege. Of course the court would not expect the great Texas firm of Jordan, Hyden, Womble, Culbreth & Holzer to violate their sworn duty to keep close their client's secrets.

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Need another reason to move the case to California? How about this -- to prevent telephonic newbies like Humboldt County District Attorney Paul Gallegos from screwing up the proceedings for everyone else.

Pacific Lumber's bankruptcy has put most everything on hold, and that includes the district attorney's massive lawsuit against the company for allegedly engaging in unfair business practices during the negotiations over the Headwaters Agreement. The case is currently at the state appellate court, where all actions concerning it were stayed pending the outcome of the bankruptcy case. Despite having failed in the lower courts, the suit remains the defining element of Gallegos' career as a prosecutor. It inspired the Palco-funded recall attempt against him in 2004, which in turn inspired the cult of personality that sprang up around the man. It's natural, then, that Gallegos would want to have a voice in the bankruptcy.

There were perhaps 20 attorneys and other interested parties from around the country participating in Thursday's proceedings via telephone conference call. Most were in California; some were in New York. They paid 50 cents per minute to participate in the nearly two-hour hearing. Gallegos had signed on because he wished to join the State Attorney General's argument to move the case to the Northern California branch of the federal bankruptcy court. He made that request early on, and was told that there was no problem -- he did not require permission from the judge to second the AG's motion. The business was quickly concluded.

A few minutes later, a buzzing static intruded on the conference call, rendering courtroom arguments mostly inaudible. A few phrases would occasionally struggle through the white noise, but never enough to follow what was happening. Finally, one of the attorneys on the line -- clearly a conference call veteran -- broke in. Was someone using a cell phone, and if so would that person please hang up out of courtesy to the others?

Gallegos confirmed that he was calling on his cell phone. For perhaps 20 more minutes, though, the static continued, essentially blocking everyone else on conference call from participating in the goings-on in Corpus Christi. When another conference caller addressed the issue again, his irritation was palpable. Would it be possible for the court to cut the line causing the problems, or at least mute it, he asked? The courtroom technicians apparently scrambled for a bit, with no success.

Finally, Gallegos informed the court that he was preparing to sign off. Before he did, though, he wanted to make certain -- would he be permitted to join in the Attorney General's motion to move the case to California? Judge Schmidt confirmed his earlier confirmation that he would. With that, Gallegos disconnected and the static was gone.

"Yep, that was the problem," someone said.

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