The Los Angeles Times Gets Indignant

 

The February 28, 2008, Los Angeles Times op-ed by Patt Morrison (If a Tree Owner Falls . . .”) takes out after Charles Hurwitz, the CEO of Maxxam, Inc., with a rhetorical meat axe, to put it mildly. Morrison is the funny-looking lady always depicted wearing funny-looking hats, and predictably spouting whatever funny-sounding liberal line captures her fancy.  This one’s a doozy.

Morrison’s op-ed tries inter alia to revive the decades-old calumnies aimed at Charles Hurwitz, CEO of Maxxam, Inc., based on how “[I]n 2001 the feds tried to get back some of the $1.6 billion that taxpayers paid to bail out Hurwitz and his pals when their S & L went belly up in 1988.” What she never tells her readers is what happened when the feds “tried.” If you want to know,  read FDIC v. Hurwitz, 384 F.Supp. 2d 1039 (S.D. Tex. 2005)

Pacific Lumber Company (PALCO) was a small lumber company whose stock was undervalued and it attracted Hurwitz’s attention, inspiring him to acquire it. The problem turned out to be that PALCO owned Headwaters Forest, a 7,500-acre old-growth redwood stand. Upon learning this, the local environmental extremists decided to extort Headwaters, being as Uncle Sam lacked budgeted funds at the moment to acquire it the old fashioned way, i.e. by buying it.

And so, inspired by some environmentalists, the feds cooked up phony charges against Hurwitz. FDIC filed suit against him in a federal court in Texas, charging wrongful conduct in connection with a failed S & L (in which Hurwitz owned a 0.006% share). FDIC also hired (that’s right, hired) the Office of Thrift Supervision to make the same charges against Hurwitz in separate administrative proceedings, thus double-teaming him. They did this though they realized after extensive investigation, that they had no winnable case against Hurwitz, and that in any event, had there been such a case it would have been barred by limitations. But they sued anyway. Why? This is where the environmentalists came in – they concocted a scheme that became known as “debt for nature,” meaning that after Hurwitz was found liable in the Texas litigation (that had nothing to do with redwoods or PALCO) he could be leveraged (read extorted) to surrender the Headwaters Forest to the feds without compensation, in exchange for the feds dropping their S & L related claims against him. The idea was that, if nothing else, the eight-figure cost of the duplicative (or as the federal court later called it, “duplicitous”) Texas litigation would force Hurwitz to come to terms. But it didn’t work out that way. The feds picked on the wrong target. Hurwitz dug in his heels, dug into his deep pockets and took on the feds.

As the Texas litigation proceeded, it became obvious that the feds’ case against Hurwitz was a tissue of unsubstantiated charges, and outright lies. Let the federal court speak for itself. The opinion opens by saying:

“This is a cautionary tale where the emperor has new clothes – a bandit’s mask. The [FDIC] sought to hold Charles Hurwitz individually responsible for all losses at United Savings, even though he had no obligation to the thrift or the government. Unable to focus its claims and unwilling to disclose its records in this suit – one that it brought – the FDIC surreptitiously paid another agency to bring a parallel administrative claim against Hurwitz, several companies and other people. Later – much later – the FDIC dismissed its claims here. Hurwitz and two companies asked that they recover their costs of defending this suit. They will recover their costs because the record reveals corrupt individuals within a corrupt agency with corrupt influences on it, bringing this litigation.”

After a detailed — and we do mean detailed — review of the record, the Court concluded:

“[The plaintiffs] set about using their agency’s authority to compel an illegal result wholly unconnected with their legitimate responsibilities and they lied about it all under oath. Whether getting the redwoods was tied to craven submission to a congressional bully or to personal ideology, they were not content with stealing from Hurwitz. Through this case they sought to ’cause him pain.’ They sought to humiliate him. . . . They heeded every call but that of duty and honor” . . . “The agency became more of a cosa nostra than a res publica.

The court awarded Hurwitz $72,255,147.

So what happened to Headwaters Forest? The feds eventually acquired it in a settlement with PALCO, and paid for it. For the government’s take on that settlement, see David J. Hayes, Saving the Headwaters Forest: A Jewel That Nearly Got Away, 30 ELR 10131 (2000). And what happened to those administrative charges? The same thing; the OTS administrative judge rejected all 13 claims filed by the agency and ruled in Hurwitz’a favor. Dennis Pfaff, Judge Suggests Killing Maxxam Case, L.A. Daily Jour., Sep. 19, 2001, at 1.

 Oh, we almost forgot. On August 25, 2005, at B1, the Los Angeles Times carried an article, by Tim Reiterman and E. Scott Rickard, entitled Government Ordered to Pay in Ploy for Redwoods, airing this whole sorry saga. But even though reported in Morrison’s newspaper, you won’t find any reference to the feds’ misdeeds or their richly earned comeuppance in her column. Why ruin a good diatribe with facts?

 

Full disclosure: Though not involved in the Texas litigation, the author’s firm, then Berger & Norton, represented PALCO in its inverse condemnation action against the feds who settled for $380 million, including a transfer to PALCO of the 7,700 acre Elk River Timberlands. For the details of the settlement and a review of the incredible, pervasive press misrepresentations that accompanied this controversy, see Gideon Kanner, Redwoods, Junk Bonds, and Tools of Cosa Nostra: A Visit to the Dark Side of the Headwaters Controversy, 30 ELR 10756. Also, for an economist’s view of the Headwaters affair, see,  Harry DeAngelo and Linda DeAngelo, Ancient Redwoods and Politics of Finance: The Hostile Takeover of the Pacific Lumber Company, 41 J. Fin. Econ. J. 3 (1998).

 

Update. We are informd that the feds’ appeal from this judgment was argued before the U.S. Court of Appeals for the Fifth Circuit, and a decision is expected at any time. Stay tuned.

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