The lawyers’ gala that the Pacific Lumber Company bankruptcy proceeding has turned into experienced yet another new twist today—as if it wasn’t already convoluted enough. The new lines of demarcation established after the Mendocino Redwood Company’s entrance into the deal were stretched thin if not indeed obliterated. It took the advent of the latest world-beating ego into the fray.
Word quickly spread through the halls of the stately new courthouse facing the Gold coast in Corpus Christi; the Beal Bank had announced that in the eventuality of an auction, they were offering $ 603 million, 20% more than called for by the Mendocino Redwood Company/Marathon Structured Finance partnership. The Beal bank is the heart of the Fortune 500 corporate empire controlled by entrepreneur, poker champion and chess master Andy Beal.
It was the MRC/Marathon partnership that gave the ongoing proceedings a first shake last December. When they announced their partnership—which gained MRC standing in the Bankruptcy proceeding–MRC/Marathon quickly jumped into the position of favorite. This was especially true after a very successful campaign, just concluded, to inform people in Humboldt County of their plan in considerable detail. The strategy of the MRC outreach was to amass so much support in the county, the region and the State, even reaching out at the Federal level, that they would gain ownership through judicial confirmation rather than through an auction.
Both the note holders and the debtor, PL, virulently attacked the MRC/Marathon position. For the note holders, it was an end run around their legally protected efforts to retrieve as much as possible of the $800 million debt owed them by Scopac for the land. For PL, the MRC/Marathon plan amounted to of the land only it was not really mother land any more,
This background helps sets the stage for the confirmation hearings currently in progress. Where last October there had been basically two power centers–the note holders with our initiative in tow, and the Company, still strong at least on the surface—there was now a very complex dynamic. PL was still in it but it was almost symbolic. Indeed, they had their own phalanx of lawyers yesterday lined up along the debtor’s table in the center of the inner courtroom and their lawyers’ rhetoric gave no indication of reduced status. They were as vehement and certain of their clients’ rights as PL’s attorneys have always been—and just as meretricious. Leading the pack was Shelby Jordan and Richard Doran. Dorn put his all into a strong presentation while Jordan stands out as a classic, his black hair slicked back, his voice oily and rich. He spoke with such authority—and so fast—that you could be mislead into thinking that he actually might be saying something.
Marathon led off the opening statements. Several lawyers for each of the three participants followed. Each participant was allowed a total of 40 minutes to be decided between their lawyers. Their arguments for the most part were candid and clear and followed similar paths. Each claimed the logic and legality of their position on ownership and the illogic and injustice of their opponents’. Each was scrupulous in support of their client’s interests
Statements in support of the MRC/Marathon plan were given by David Neier for Marathon, Allan Brilliant for MRC and John Fierro for the creditors’ committee. They made a telling point. An auction would delay a conclusion to the process by as much as six months while potential bidders were allowed to review and field check inventory information. How, the lawyers asked, would the company survive during that period? They also stressed again the fact that their plan alone assured the survival of the mill. MRC was ready to start operating immediately after confirmation. This is a great plus to the people who work at PL and their suppliers.
The note holders’ attorneys, led by the sotto voiced William Greendyke of the vaunted Houston firm, Fullbirght and Jawarski, stressed the righteousness of the auction, through which alone could they achieve anything resembling fair market value. They suggested that no owner of the land would in their right mind let the mill go down but they indeed did not make a concrete proposal as to how, in their initiative, its survival would be guaranteed.
The avalanche of support for the MRC plan was impressive, especially when the lawyer from the California Attorney General’s office stood up and followed suit. (The Judge had mentioned all the mail he’d received in his opening comments, even telling of a CD the “Hurwitz in Handcuffs in Humboldt” songs.) Perhaps the strongest speech in the morning’s session was provided by a lawyer for the Unsecured Creditors’ Committee. He blasted both PL and the note holders and said that clearly PL can’t continue. They simply don’t know how to make a profit. He also blasted the Maxxam scientists and the Maxxam reorganization plan itself, it’s intent and its absurdly stretched valuations. In the end, he said, we have reached the moment of a “paradigm shift,” a new beginning.
One cannot argue with him about the momentousness of the occasion but whether we are on the lip of a major transformation in how things are done or just seeing another change of ownership, plucked from the hands of one distant lord and dumped in another, is still a question. Before the announcement of the new bid, it was easier to be optimistic that real change was about to make its entrance—either though MRC’s management regimes or those of the TNC/CFT consortium.
The afternoon session featured a systematic and largely unsuccessful effort by the attorneys for PL and the note holders to discredit through cross examination an Oregon appraiser, Rich Lamont, who had come up with a valuation of the timberland for Marathon last year of approximately $430 million. Needless opponents could easily accept that low figure. The issue of value, always central, has become increasingly crucial to the ultimate dispensation of the company.
This was hammered home at the end when Judge Schmidt closed the day with the most important comments yet spoken. He said, with a kind of wistful, look, that he hoped somehow that the two tables could get together. By this he meant that he wanted the note holders and MRC/Marathon to reach an agreement that would allow him a clear confirmation that would not provoke further litigation. He said that there had been a very large show of support for one party and that the other had a very strong legal position. He hated to have to choose between them.
This meant two things. One was that for this proceeding to finally reach a resolution and for all the lawyers retire to spending the fruits of their ungodly billings, the two parties, MRC/Marathon and the note holders–had to reach an agreement. Most likely it meant MR/Marathon enriching the pot—depending upon which valuation was finally determined to be most accurate–and the note holders giving up their idea of an auction which we know now would start at $ 603 million. If an agreement was not reached and since both parties had sufficient votes for confirmation as well as met the basic standards for confirmation, the Judge would have to make the decision. He clearly did not want to do that. Whether he was willing to actually get forceful with both parties about working out an agreement is one of the remaining dramas.
One thing was perfectly clear in the Judge’s offhand wish that the two tables would come together to make confirmation easier, the third table, where Jordan and Doran sat with Hurwitz’s standing legal army, was not mentioned. PL was out of the running. Charles Hurwitz and Maxxam Corporation are quickly on their way out of Humboldt County
A note on this festival of lawyers- Over 90 people packed in to the relatively small courtroom at peak attendance this morning. There were two security people and a smattering of PL executives, forester Bill Kleiner from Humboldt and I. That’s pretty much it for the non-solicitor presence. There were well over 40 lawyers in the inner court itself and a least another 10 or maybe even 20 more outside.
That makes close to 60 lawyers. Some represented PL, some the note holders or MRC or Marathonn—all on the meter, all being compensated at an average rate maybe of $500 an hour. If they clocked in six hours just for their courtroom efforts, it could add up to over $300,000 for the one day in a multi-day event. And it all comes out of the trees. Our trees! The lawyers in a bankruptcy, one should remember, get paid first no matter who wins or losses or what happens to the land or our community.