the town dandy / By Hank Sims

The Wooden Stake

(Feb. 15, 2007)  Enron. Halliburton. Kellogg, Brown & Root. These hallowed, historical names occupy the very highest rank in the annals of Texas industry and commerce. Whether helping to throw elections for Lyndon Johnson, putting their CEO (Dick Cheney) in the White House or simply ripping off investors and out-of-state electricity buyers on a magnificent scale, these are the companies that were willing to take their state’s rapacious cult of independence to new, previously unimaginable heights.

Let’s face it, folks - measured against this crowd, as he surely measures himself, Maxxam Corp. CEO Charles Hurwitz has always been second-tier, more of a Charles Keating type than a true Lone Star Stater. Yes, he bought two major American corporations with money he didn’t have, and has now bankrupted both of them to his own profit, but any pencil-neck CPA who came of age in the 1980s could have done that. Hurwitz has insouciance aplenty, but he’s not yet hit upon that genius stroke that will catapult him into the record books.

Dalton Trumbo said it best: “Let the lie be delivered full-face, eye-to-eye and without scratching of the scalp … but let it, for all its simplicity, contain one fantastical element of creative ingenuity.” Well, with the Pacific Lumber bankruptcy, Hurwitz appears to have gone one step further and introduced two fantastical elements into the mix, a move Trumbo explicitly warns against. Perhaps it will prove fatal.

We’ve got a lot of ground to cover this week, so let’s get right to it. There were three major motions filed by interested parties in the Palco bankruptcy last week, and each of them sheds light on different aspects of Hurwitz’s breathtakingly audacious play to engineer the company’s demise to his own maximum benefit. The general idea, it is plain, is to hold on to the company long enough to extract yet more of its assets. There’s a hearing on these matters this morning (Thursday, Feb. 15) in Corpus Christi. It’s hard to see how Hurwitz could possibly get his way, given the out-and-out flagrancy of the thing, but don’t forget - this is Texas we’re talking about.

The first fantastical element is Maxxam’s creation of a shell company - “Scotia Development” - in order to hold the Palco bankruptcy proceedings in Texas rather than California. Since it was reported in this space two weeks ago, this move has received a great deal of press, most notably in an amusing pair of Times-Standard stories by ace reporter John Driscoll last week. In short, Maxxam created this “Scotia Development” firm last summer, and headquartered it in a 344-square-foot office five blocks from the Corpus Christi branch of the federal bankruptcy court. Maxxam is arguing that this “phone booth” office gives the Texas branch of the court legitimate jurisdiction over the Palco bankruptcy, since “Scotia Development” - big surprise - went kaput at the same time as its 130-year-old sister corporation in California.

This argument was attacked last week by both the California Attorney General’s Office and the “unsecured creditors committee” - those luckless souls who are owed money, but who have no collateral. (As it turns out, the Journal itself is one of the approximately 3,000 unsecured creditors. When bankruptcy was declared, Palco subsidiary Britt Lumber owed us $85 for ads.) Both the AG and the unsecured creditors are asking Judge Richard S. Schmidt, of the Corpus Christi court, to order the proceedings moved to California.

The AG’s motion was the first in, and it was therein that the phrase “phone booth presence” was coined. The motion alleges that Maxxam wanted the case heard in Texas in order to limit the participation of creditors, of which the State of California is one, and to limit future environmental regulation: “In their bankruptcy filings, Debtors have asserted that their operations have been negatively impacted' by thecontinued regulatory restraint.’ This statement strongly suggests that Debtors will attempt to use the bankruptcy forum as a vehicle to relieve themselves of their regulatory obligations.”

But it was the unsecured creditors’ pleading that really blew open the “Scotia Development” fiction. In it, they give a gruesome timeline of the history of the “firm.” In May 2006, they show, Maxxam contacted Jordan, Hyden, Womble, Culbreth & Holzer, a Corpus Christi-based law firm specializing in corporate bankruptcy. Scotia Development, which was purportedly formed to explore real estate development “in and around Scotia, Calif.,” was incorporated in Corpus Christ in June. The fictitious firm rented the “phone booth” office - $500 per month, no lease - from a former Jordan, Hyden client. The only business that the firm ever did came a few months later; it bought two options to purchase two pieces of real estate around Corpus Christi, for a total of $10,500. Both of the options sellers were also Jordan, Hyden clients.

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