March 29, 2007

Cabinet of curiosities

by HANK SIMS

No news, no news, no news from Corpus Christi. The dispatches from the massive Pacific Lumber bankruptcy trial have been few of late, mostly because Judge Richard S. Schmidt, the Texas judge in whose lap the Maxxam Corp. placed its failed subsidiary, has been slow to judge whether or not to bend to the overwhelming sentiment of all concerned to move the case to California (see "The Town Dandy," passim). Schmidt will likely rule any day now -- perhaps he already has, by the time you read this. If he lets the case come home it will be a miracle.

In any event, things will be picking back up quickly this week. On Friday, the big Wall Street firms that hold $720 million worth of notes on 200,000 acres of Palco's Humboldt County timber lands are scheduled to take center stage. They'll be arguing for their right to foreclose on and take possession of those acres post-haste -- like, within the next couple of months. More about that in a moment.

First I'd like to note that it's been edifying, these last couple of weeks, to take leisurely strolls through the hills of paperwork the Pacific Lumber bankruptcy has generated. There's some real gems in there. Take a look at that one-page sheet entitled "Payments to Company Insiders Within The Last Year," aka Docket #429-1, which Mark Lovelace of the Humboldt Watershed Council brought to my attention. (Thanks, Mark!)

What #429-1 shows is how money flowed from Pacific Lumber to other units of Maxxam Corp., as well as key company players, in the year before bankruptcy was declared. And what do you know -- though Pacific Lumber was suffering throughout 2006, with dire warnings of imminent failure filed in each of its reports to the Securities and Exchange Commission that year, it turns out that some people did not do so badly at all! In fact, in the three and a half months preceding the declaration of bankruptcy Pacific Lumber was able to send nearly $8 million upstream to Maxxam. That's $8 million sent from Palco back to Maxxam HQ in Houston, squirreled away and shielded from the company's many creditors. It's been conclusively shown that the company was already preparing bankruptcy at this time.

There's more. Former CEO Robert Manne, who left the company in July, took home $1.5 million for his six months of service. That presumably includes severance, because his replacement, George O'Brien, was awarded only $352,192 for the other six months. Gary Clark, the company's chief financial officer, took home $442,525 for a full year's work.

So that's #429-1. Since I'm obsessed to the point of absurdity with fairness and balance in reporting, I'll also give a shout-out to Docket #492, the company's shot across the bow to the aforementioned noteholders. This Palco motion, whose full legal title is too lengthy to reproduce here, seeks to pull the mask off its creditors, and does so in fine, furious fashion.

Earlier, I said that the noteholders were "big Wall Street firms." That's true -- the list includes names like Citibank, Bank of America, J.P. Morgan. It also includes a few lesser-known names, like Avenue Capital and Camulos Capital (see "The Town Dandy," Feb. 15). But nobody except God and the bondholders themselves knows who owns how much. Does Avenue Capital, a major Democratic party donor, own 5 percent of the bonds or 95 percent? No one knows.

Docket #492 demands that the noteholders provide a precise accounting of themselves to the court, and in doing so slams the noteholders' attorney, Evan Flaschen, for his stirring speeches on the justice of his cause and the evil of Maxxam (see "The Town Dandy," March 8). "Nor does the [noteholders' committee] stop at filing its pleadings with scurrilous, baseless and personal accusations," Palco complains at one point, "in addition, its counsel continually seeks to try this case in the press."

Well, we happen to like Flaschen's stuff, and we're considering hiring him to fill this space when I go on paternity leave. But let's give a cheer for #492 anyway, and wish it speedy success. Starting this Friday, the noteholders will attempt to wrest 200,000 acres from Maxxam; if they are successful, then #492's fruition will let us know who, precisely, we are dealing with. Pacific Lumber formed a shell company (Scotia Pacific) to hold timber land in trust for the noteholders. That's why lenders were willing to lend to Pacific Lumber in the first place; they had collateral. Now the company has failed, and they want to repossess. Simple enough, but remember, please ... this is Texas. Expect the unexpected.

Hey, would you like to listen to the proceedings? Now you can! The intel we're getting is that both the Eureka Reporter and the Times-Standard are going to be sponsoring public hearings, in which the general public can come and listen through the court's conference call system. They'll be starting this Friday, 8 a.m., with the beginning of the trial on the noteholders' motion to foreclose. Check your paper for local listings.

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Last week, we asked the question: What ever became of that? Specifically, we wondered what had become of several riveting events and controversies that dominated the headlines approximately 12 months ago, one of them the possibility of criminal charges being filed against members of the Eureka Police Department in connection with the shooting of Cheri Lyn Moore last April.

What, we wondered, was the hold-up? Either District Attorney Paul Gallegos will charge the officers with a crime, or he will not. He has yet to definitively do either. He has not charged, and he has not said he will not charge. And this is more than a little puzzling. The police stand-off with Moore, which ended with her death, lasted a little longer than two hours. There was a thorough, inter-agency investigation into the shooting, the results of which are on Gallegos' desk. There was a public inquest into the matter six months ago, at which nearly all the officers concerned, as well as others connected to the incident, testified under oath.

There are two matters for a prosecutor to consider when charging a crime, I'm told -- the facts and the law. It truly stretches one's credulity to imagine that either would take a year to research. In the case of the facts, the great bulk of the work has already been done -- forensic reports completed, witnesses interviewed, sworn testimony taken. It's not inconceivable that there would be a follow-up question or three, but it should hardly take six months to ask them. You'd think. The law, then? But this is an attorney's office. Great bound books detailing all the relevant statutory and case law lay at Gallegos' fingertips, and the DA bears a certificate from the state bar association which assures us that he knows how to read them.

We sought answers in an e-mail to Gallegos last week. We didn't hear back until after deadline. Here's his response, in toto: "All I can tell you is that we are evaluating the evidence that we have and will render an opinion on it as soon as we are able to."

The charitable onlooker might focus on the final phrase -- "as soon as we are able to." Having fired or otherwise driven off most of his experienced staff, Gallegos' office now suffers from terminal short-handedness, and what hands there are are mostly green. Therefore, perhaps even a case with as high a public profile as this one must sit on the backburner, waiting for ... something.

The onlooker not inclined to charity might say that Gallegos is a political creature first and foremost, and is simply sitting on the thing because he's unwilling to make a decision one way or the other for fear that it might piss off either a) his left-of-center base or b) the police. That's what an uncharitable onlooker might say.

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