Day 2

Wednesday, day two of the PL confirmation trial, belonged to Sandy Dean. Judge Schmidt announced the day before, Tuesday, that he’d be absent for the morning session. This left the legal power squads leisurely milling around the halls of the comfortable Omni hotel, where they closeted their suits and ties. The Omni is Corpus Christi’s best, only two blocks from the Federal Courthouse. The latent legal power in the Omni lobby may have rivaled that of any similar equal square footage in the nation that day. It was all running on Humboldt trees, but if you think that might result in a little humility among your average Texas lawyer, you’re not familiar with the breed.

The afternoon session started at 2:00 PM and finished at 8:00 with only one short break approximately half way through. Word had come down that the Judge would be even later so the barristers paraded in well after 2:00. Even then, we all sat waiting for many minutes more until Judge Schmidt showed up.

The first part of the session was dedicated to the testimony and cross-examination of another of the MRC Marathon witnesses, Jeffrey Johnson, who evaluated Newco’s businesses plan and compared it to PL’s. Johnson’s study had determined the “enterprise value” of the freshly minted MRC/Marathon entity if it were to take charge of the PL timber operation. That value was $540,000,000. Whatever this figure actually stood for, it came under attack from the combined might of PL and MRC/Marathon’s legal teams (lets call it McMarathon so we can remember it). Neither the attack nor the testimony seemed telling and, for the most, part, the courtroom air went unstirred and observers were left to squirm on the handsome but painfully hard cherry wood benches or to discretely nap.

The somnolent afternoon was hardly disturbed when Johnson stepped down from the witness stand and the MRC CEO, Sandy Dean, was sworn in. Mr. Dean is not cut from the same cloth as the average PL executive if we can assume there is such a thing. Trying to typify on one’s mind the executive class at PL over recent years, one sees a line of rather imposing, characters, large men all, menacing in the instance of John Manne or bluff like Aussie, John Campbell or the substantial but mannerly CFO, Gary Clark or, in the case of current CEO, George O’Brien, almost cuddly. Erstwhile legal head and VP, Frank Basic is nothing if not true to the mold and stands somewhere between the menacing and the cuddly depending on his mood and yours or whether you’re sitting accross from him in court

Sandy Dean is in no ways beefy. ’Wiry’ fits. ‘Scrawny’ might have a few years ago. The thick glasses, the narrow chest, the drawn cheeks and the antic energy are combined with a razor sharp intelligence that bursts out almost beside himself. If he were in a police lineup, you might peg him for a hacker, never a timber beast. And yet he is currently CEO of a major timber company and by all estimates capable, He stands right now only a step and a half away from becoming the CEO of the second largest Redwood company in the world. If one were looking to symbolize a paradigm shift, you’d only have to compare the hulking avuncular O’Brien with Sandy Dean, the perennial kid brother, mercurial, always with the tricky moves.

But the paradigm is not shifting all that easily. There are major resentments against McMarathon on the parts of the ‘Notes’. (PL bankruptcy slang for the Scopac note holders) that carries over to their lawyers. It occasionally breaks into flat out conflict when one or another attorney tries to push the envelope trying get useful testimony from the other side’s witness. The objecting and yelling and carrying on is first-rate entertainment. The Judge tolerates it, and then brings it gently under control. He reminds them that this is not a jury trial; it’s only him they’re talking to and he’s not going to be fooled by bombast. No one would dare disrespect this Judge. He’s very calm, well-intended and smart.

The game for Dean and indeed the way the whole trial worked was: a lawyer for one side introduces and brags about a witness for their side and then lawyers from other two tables take turns beating him up. (A note here on gender composition, At the height of the hearings crowd-wise, when over 90 people filled the room, there were 6 women. One of them was a fully functioning attorney, Janice Coleman for PL. Two were legal aides or acted as such, and three were randomly scattered in the gallery doing God know what for God knows who. During the four days, not one woman, even the “real’ attorney spoke or was called as a witness. Is this a testimony to sexism in timber? In the legal profession? In Texas? All three, I suspect.

Dean got a good going over from several lawyers for both the Notes and for PL. His was not a popular cause in the inner courtroom. The Notes believe with some conviction that McMarathon is trying to get the property, their property, on the cheap and by many estimates they are. The problem is that we want them to get it cheap. The county wants to see the debt burden sufficiently reduced to allow for a management regime that limits new cutting and allows inventories—and watersheds—to rebuild.

Sandy Deane handled himself handsomely. He was never rattled, never without a good answer, but he was also never overconfident or less than respectful of the situation he was in. He was, of course, quite knowledgeable about forestry especially compared to the hungry lawyers who were seeking holes in McMarathon’s valuation and their overall plan,

McMarathon has two distinct advantage right now. One is that they are taking on the mill. No one else immediately in this fray is doing that. The Notes pay lip service to keeping the mill open but make no larger commitment than guaranteeing that the mill will have a level of supply of logs off the timberland. The second advantage is that McMarathon is ready to move in and start running the mill and lands right after confirmation. There will be little or no loss of work for the employees. Beyond this, the harvest schedule, starting with 53,000,000 board feet per years for the first 10 years, is compelling because it allows the forest to grow and damaged land to stabilize

This also created a problem for Dean in the cross-examination. One of the high powered attorney for the Notes, Zack Clement, caught on all by himself to the fact that if you reduce the cut and leave some trees alone for a while, inventory grows and there is more potential income when you harvest it and the growth rate itself goes up as well as the value of the land itself. Clement thinks that some of that should be shared with the Notes now. He has an argument, but its not one that hasyet been resolved even by the timber industry.

Onward to day three.


6 Responses to “Day 2”

  1. J Warren Hockday Says:

    Thanks David

    I truly appreciate your work on this. It is informative and poetic.

    Please keep it up. There is so much at stake in this end-game.

    Your analysis is dead on and I admire your attention to detail. Reading your work helps me feel that I was there, in the courtroom too.

    I think we are all looking toward a similar and hopeful outcome in this arcane exercise. Your insight and clarity helps make it real even for those of us who aren’t $5 big bills per hour practitioners. Yet we all will be affected by the end product of this cantankerous process. So thanks for making it interesting and appreciable for the uninitiated like me.

    One note: It’s Robert Manne…not John.


  2. gulo gordo Says:

    Thanks, David! I’m hoping there’s a Human Nature treatment of the legal/corporate/low finance stewpot brewing.

    I do suspect, however, that whatever your (or anyone else’s) average Texas lawyer might be, the breed you’re privileged to observe in their native habitat is a rarer sort (if not necessarily in a way that would really make one want to seek them out). Condors, say, as against your run o’ the mill buzzard. Or maybe crested caracaras. Or cassowaries.

  3. Carol Says:

    Thank you, David, for being the eyes and ears for all of us in Humboldt County.

    I have enjoyed your productions, especially the musical about the salmon.

    We have a link to your blog on our blog:

  4. Heraldo Says:

    I noticed the same distinction about Sandy Dean when the McMarathon (love it!) show came to Eureka. He’s not in the same category as Robert “local residents lead empty lives” Manne.

  5. Kym Says:

    I expected to slog through this trying to understand the ins and outs of an important issue here. Instead, I enjoyed every minute of the excellent writing. Thank you!

  6. Patrick Shannon Says:

    The Notes, as you call those who invested in Pacific Lumber Timber Bonds, might be more thoughtful than you credit them. I notice that the Notes have retained the same investment banking firm, Houlihan, Lokey, Howard & Zukin, that represented the Kelso Esop plan for PL twenty years ago when the employees offered to purchase an Employee Stock Ownership Plan.
    Had that offer been accepted, none of what has followed would have occured. Not the $480 million rip-off for the Headwaters deal, or the wild rush to harvest timber like there was no tomorrow. Now that’s done and the forest will require 100 years to return to an even harvest of mature trees.
    Judge Schmidt is wise to call for a reconciliation between the bidders. I only hope the displaced workers of PL are remembered.

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