The Trial of Charles Hurwitz

The beginning and end of the fraud suit against the former Pacific Lumber chief

(April 30, 2009) The anticipation was palpable in a hallway of the Ron Dellums Federal Building last week as the fraud trial of Texas financier Charles Hurwitz, the former owner of Pacific Lumber, was about to get started. Small groups of people gathered outside of U.S. District Judge Claudia Wilken’s courtroom. On one side of the hallway a few of Hurwitz’s sharply dressed lawyers whispered intently in a last-minute huddle. On the other, a loose-knit collection of Humboldt County environmentalist chatted casually in equally hushed tones. Each group eyed the other with suspicion while they waited for the judge to enter the courtroom, signaling the start of opening arguments.

The trial had all the elements of a big-screen drama — a match -up between two legal titans, a defendant many perceive to be a rapacious corporate villain and several hundred million dollars hanging in the balance. In the trial’s first week — and, as it turned out, its last — a powerful U.S. congressman took the stand to testify for the plaintiffs, and on another day tensions boiled over during a recess and the two legendary lead attorneys got into a nose to nose argument that looked like it would end in blows.

GALLERY >

There was also the draw of a long-awaited final act in a 22-year saga of upheaval and controversy that changed the landscape of California’s scenic northern coastlands, pitted loggers against environmentalists and neighbor against neighbor, and forever altered Humboldt County economy and society.

Former U.S. Representative Pete McCloskey, one of a battery of attorneys representing the two state officials suing Hurwitz, was standing outside the courtroom. He said he was confident in his clients’ case and he was eager for the trial to get underway. He briefly ran down the basics of the case to a reporter and, like a dutiful attorney, took advantage of a public relations opportunity to speak highly of his clients’ credibility and their motivations for brining the lawsuit.

McCloskey pointed out that he had co-authored the Endangered Species Act in 1973 when he served as U.S. Congressman for California’s 11th district. “Hurwitz ran head on into that act in the early 1990s,” he said with a barely perceptible wink from underneath a hoary brow. Then word spread quickly through the hallway that the judge was taking the bench.

“You know, I really wish I could sell tickets to what’s about to happen in there,” McCloskey said, and headed into the courtroom.

The two state officials brought a qui tam (or “whistleblower”) lawsuit against Hurwitz on behalf of the United States government. They claimed that as owner of Maxxam, Inc. and Pacific Lumber, Hurwitz defrauded the United States and the state of California governments by falsifying documents to facilitate the $480 million sale of the Headwaters Forest in 1999. The deal put into public ownership 7,500 acres of timberlands that contains a unlogged 3,000-acre stand of redwoods, which at the time was largest contiguous old-growth redwood forest that in private ownership.

The two state officials — Richard Wilson, the former director of the California Department of Forestry (CDF), and Chris Maranto, a CDF forester — also claimed the documents were cooked in such a way that allowed Pacific Lumber to surreptitiously harvest more trees on the remainder of Pacific Lumber’s 211,000 acres than would otherwise be allowed by federal agreement and state law. If the suit were successful, the judgment, which could have been in the hundreds of millions, would mostly have gone to the United States and California, though a percentage would have gone to Wilson and Maranto.

1 2 3 4 5 6 7 8 9 10 NEXT PAGE >SHARE

SIX Comments

Comment / By Chris / April 30, 2009, 10:22 a.m.

Under both the Federal & State False Claims Act the Gov’t has 3 options; (1) Intervene and direct prosecution of the case; (2) decline to intervene which then law spells-out how the complainant prosecutes the case with the Dept Of Justices active in the background, or (3) the DOJ’s petitions the Courts to dismiss the case because they have concluded that the allegations lack merit. Both State and Federal DOJ’s did not petition the court to toss the claim. And, 3 times Defendants’ submitted petitions to the Federal Court to toss the case with an appeal to the 9th Circuit, which summarily dismissed Defendants’ claim.

Moreover, in reply to Hurwitz’s motion that the right to petition the gov’t [i.e. the Headwaters transaction] under the First Amendment protects against fraud, the State DOJ rebuttal brief states “Even when the government chooses not to intervene in an action, it remains the real party [of interest] and retains a significant amount of control over the litigation.” In closing their brief, DOJ writes “These cases further demonstrate that Defendants’ fraudulent activities in connection with the Headwaters sale can be subject to liability under the CFCA.” [Calif. FCA]

Thus, if the respective DOJ’s and Federal Judge believed Defendants’ claims, the case would have been tossed out long ago! Contrary to their public statements, Brosnahan and Defendants very well understand this.

Finally, Hurwitz’s legal fees were approaching $20 million leading up to the trial. Since the DOJ’s did not intervene, they assumed absolutely no liability if judgment was for the Defendants; a free ride for the gov’t if you will!

Comment / By Nick / May 1, 2009, 5:44 p.m.

Remember that Hurwitz believes in the Golden Rule, and he has proved it once again. As he told Pacific Lumber workers soon after seizing control of the company in 1986: “He who has the gold, rules.”

After sucking some $3.75 billion out of Humboldt County (according to Humboldt Watersheds Council) Hurwitz buys his way out of trouble for a mere $4 million and slithers back to Houston. Let’s see, a billion is a thousand million, so $4 mil is slightly more than 1/10 of 1% of Hurwitz’s haul.

The plaintiffs’ lawyers were afraid they wouldn’t get a unanimous jury verdict, based on their jury watching. They were worried that the judge’s ruling barring evidence from the PL bankruptcy filings that showed Hurwitz exercised active control of PL would make it harder to prove their case.

According to two of the jurors interviewed on KMUD News, the jury was going strongly for the plaintiffs, especially after two very strong witnesses on Monday. The evidence of malfeasance was clear and convincing.

If one or two jurors sided with the defendants it would have meant a hung jury and a mistrial. That would not necessarily have ended the case if the plaintiffs stuck with their case and went through a second trial. In the Humboldt Pepper Spray Q-Tip case, the first two trials ended in a hung jury, but the third time was the charm for the plaintiffs.

I’m disappointed that the plaintiffs and their legal team didn’t have the courage and stamina to play their very strong hand to the end, and not settle on such weak terms. Of course that’s said with the advantage of 20/20 hindsight.

I don’t know the circumstances, but maybe the plaintiffs’ legal team wasn’t willing to do it over in case of a hung jury, and was afraid of not getting paid. With this settlement the lawyers will get their $1 million fees and costs paid promptly. If they had won a jury verdict awarding tens or hundreds of millions in damages, Hurwitz would certainly have appealed, and it would have been another two or three years before the appeal would be decided. In the meantime, no money from the defendants, and the defendants might even get lucky at the appeals level and overturn the verdict.

The great majority of civil suits end in a settlement, not a verdict. I just wish they had held out long enough for Hurwitz to have been forced to answer questions under oath in front of the jury and the public, which has never happened before, and which was about to happen. And I wish the plaintiffs had held out a richer settlement that was more painful and humiliating for Mr. “Golden Rule” Hurwitz.

Even though the settlement was disappointing for many of us who have watched and battled Maxxam over the decades, there’s no denying that the result vindicated Paul Gallegos, Tim Stoen, and the citizens who tipped them off to the fraud.

Comment / By Jerry / May 3, 2009, 3:24 p.m.

It has been a long struggle with threats, injury, and the division of communities based upon incorrect and misleading information. EPIC has been a stalwart in protecting the water and beauty of the region. There are solutions but Hurwitz fought to delay any solution so the illegal and unethical practices could continue. And three cheers for Richard Wilson. He struggled mightily with the issues, was dismayed over the politics in the effected counties, and finally fell out on the correct side. With the threats in the air after Redwood Summer, brave people stood firm. Here’s to the courage of many.

Comment / By Copernicus Jones / May 6, 2009, 10:18 a.m.

Here, Here… to the direct action of EF! and Redwood Summer, to the attempt by Stoen/Gallegos… to the people of humboldt that knew what a corporate raider was…unfortunately we fell short with the loggers/workers. Our education campaign fell short on the local timber workers… we should have been united as in days past, solidarity, instead we lost the info war.

Comment / By Lionel Gambill / June 9, 2009, 3:15 p.m.

In 1990 I obtained from Bill Bertain a copy of the civil complaint against defendants Milken, MAXXAM, Hurwitz, Drexel Burnham Lambert, Boesky, Salomon Brothers, Pacific Lumber, and others.

I sent it to Attorney General John Van de Kamp, then Attorney General, State of California, noting as follows:

“Reviews by attorneys indicate there may be a basis for criminal complaint warranting review and possibly action by the Attorney General’s office.

“If the allegations detailed in the civil complaint are valid, Pacific Lumber was illegally taken over by a group of unscrupulous predators, and that company should revert to its original ownership. Justice would be better served by that outcome than by rewarding predators through purchase.”

Months later I was told that my letter was being reviewed by the AG’s San Francisco office.

But 1990 was an election year. In November Dan Lungren was elected Attorney General, and I heard no more about any AG investigation of the matter.