Posted: September 13th, 2017

The Fight over the Redwoods

The Fight over the Redwoods

CASE 7.4 The Fight over the Redwoods
dense forests of coastal redwood trees once covered 2.2 million acres of southern Oregon and northern

California. Today, only about 86,000 acres of ­virgin redwood forest remain. Most of this is in public

parks and preserves, but about 6,000 acres of old-growth forest are privately owned— nearly all of it by

the Pacific Lumber Company, headquartered in San Francisco. Founded in 1869, Pacific Lumber owns

220,000 acres of the world’s most productive timberland, including the old-growth redwoods. For years,

the family- run company was a model of social responsibility and environmental awareness. Pacific

Lumber paid its employees well, supported them in bad times, funded their pensions, and provided

college schol-arships for their children. It sold or donated nearly 20,000 acres of forest to the public,

and instead of indiscriminate clear- cutting, the company logged its forests carefully and selectively.

Throughout its history, the company harvested only about 2 percent of its trees annually, roughly

equivalent to their growth rate. After other timber firms had logged all their old- growth stands, Pacific

Lumber had a virtual monop-oly on the highly durable lumber that comes from the heart of centuries- old

redwood trees. 109 Because Pacific Lumber was debt- free and resource-rich, its potential value drew

attention on Wall Street, where the firm of Drexel Burnham Lambert suspected that the com-pany was

undervalued— and thus ripe for raiding. In 1985, Drexel hired a timber consultant to fly over Pacific

Lumber’s timberland to estimate its worth. With junk- bond financing arranged by its in- house expert,

Michael Milken, Drexel assisted Charles Hurwitz, a Texas tycoon, and his firm, Maxxam, Inc., to take over

Pacific Lumber for $ 900 million. After initially resisting the leveraged buyout, the timber com-pany’s

directors eventually acquiesced, and by the end of the year Hurwitz and Maxxam had control of Pacific

Lumber. At the time, Hurwitz was primary owner of United Financial Group, the parent company of

United Savings Association of Texas. In exchange for Milken’s raising the money for the takeover of

Pacific Lumber, Hurwitz had United Savings pur-chase huge amounts of risky junk bonds from Drexel.

Three years later, the savings and loan failed, and taxpayers were stuck with a bill for $ 1.6 billion. The

takeover of Pacific Lumber left Maxxam with nearly $ 900 million in high- interest debt. To meet the

interest pay-ments, Maxxam terminated Pacific Lumber’s pension plan and replaced it with annuities

purchased from an insurance company owned by Hurwitz. Worse still, Maxxam tripled the rate of logging

on Pacific Lumber’s lands, and it was soon clear that Hurwitz intended to log the now- famous

Headwaters forest, a 3,000- acre grove of virgin redwoods— the largest single stand of redwoods still in

private hands “ It was the reason we were interested in Pacific Lumber,” Hurwitz says. And one can see

why. The value of the grove is astronomical: Milled into lumber, some of the trees are worth $ 100,000

each. The potential lumber may be worth a fortune to Hurwitz, but environmentalists consider the

Headwaters grove to be priceless as it is, and they stepped in to do battle with Hurwitz. They see the

Headwaters forest with its 500- to 2,000- year-old trees as an intricate ecosystem that took millions of

years to evolve, a web of animals and plants that depend not just on living trees but also on dead, fallen

redwoods that provide wildlife habitat and reduce soil erosion. Some of these activ-ists— including

Darryl Cherney, a member of the environmen-tal group Earth First!— have devoted their lives to

stopping Hurwitz. Earth First! is not a mainstream conservation organi-zation; it has a reputation for

destroying billboards, sabotaging bulldozers and lumber trucks, and spiking trees with nails that chew

up the blades of saws. “ Hurwitz is a latter- day robber baron,” Cherney claimed. “ The only thing that’s

negotiable . . . is the length of his jail sentence.” Other environmental organizations opposed Hurwitz in

court. The Sierra Club Legal Defense Fund and the Environ mental Protection Information Center filed

sixteen lawsuits against Pacific Lumber, giving the company’s legal experts a run for their money. One of

these suits bore fruit when a judge blocked the company’s plan to harvest timber in a smaller old-

growth forest known as Owl Creek Grove. The legal rea-son was protection of the marbled murrelet, a

bird about the size of a thrush, which breeds in the forest and is close to extinction. The judge also

noted that “ after the logging of an old- growth forest, the original cathedral- like columns of trees do

not regenerate for a period of 200 years.” Pacific Lumber appealed the Owl Creek decision, but the ruling

was upheld a year later. However, at the same time, the company won the right to appeal to another

court to be allowed to harvest tim-ber in the larger Headwaters forest. Meanwhile, both conser-

vationists and a number of public officials were making strenuous efforts to acquire Headwaters and

some surround-ing redwood groves from Hurwitz. Some environmentalists, however, worried that too

much attention was being directed toward saving the 3,000- acre Headwaters grove while leaving Pacific

Lumber free to log the rest of its land with abandon. They were less concerned about the murrelets in

particular or even the redwoods themselves; rather, what disturbed them was the dismantling of an

ancient and intricate ecosystem— an irreplaceable temperate rain forest, home to some 160 species of

plants and animals. Their aim was to build a new style of forestry based on values other than board feet

of lumber and dollars of profit. They sought sustainable forest management and a new resource ethic

devoted to rebuilding and maintaining habitats for coho salmon, the murrelet, the weasel- like fisher,

and the northern spotted owl. As a first step, these conservationists called for protection, not just of

the 3,000 Headwaters acres, but also for an area nearly twenty times that amount, called the

Headwaters Forest Complex. This tract included all the ancient redwoods that Hurwitz owned and large

areas of pre-viously logged forest. “ We have a vision that’s bigger than Headwaters,” said Cecelia

Lanman of the Environ mental Protection Information Center. Her vision was definitely more sweeping

than that of the Pacific Lumber workers in Scotia, California, a village contain-ing 272 company- owned

homes. Because Hurwitz instituted stepped- up logging, which meant more jobs, his employees tended

to side with him, not the environmentalists. Workers said that Hurwitz had reinvested more than $ 100

million in modernizing his mills and had kept up the tradition of paying college scholarships for their

children. The environmentalists were the real threat, said one employee. “ You’ve got a group of people

who hate Mr. Hurwitz, and they’re using the Endangered Species Act and anything they can to hurt him.

And we’re caught in the middle.” Update In 1999, Hurwitz signed a deal negotiated by Senator Dianne

Feinstein and Deputy Interior Secretary John Garamendi. In exchange for a 7,500- acre tract that includes

the Headwaters grove and 2,500 additional acres of old- growth forest, the U. S. government and the

state of California agreed to pay Pacific Lumber $ 480 million ( half of what Hurwitz originally spent for

the entire company with its 220,000 acres of timberland). The agreement banned logging for fifty years

on 8,000 other acres of company land in order to safeguard the murrelet, and it set up buffer zones to

protect the river habitats of endangered coho salmon and steelhead trout. A Habitat Protection Plan

regulated how and where Pacific Lumber could harvest timber on the rest of its land. However, because

Hurwitz transferred the $ 868 mil-lion debt that still remained from his original hostile takeover of

Pacific Lumber from Maxxam to Pacific Lumber itself, the com-pany still needed to log as much as it

could to make its interest payments. Pacific Lumber, for its part, contended that state and fed-eral

agencies were so rigidly enforcing the habitat conserva-tion plan that it couldn’t cut enough lumber to

keeps its mills running, and in late 2001 it closed down Scotia’s 104- year-old mill. “ We are being

strangled by the operating restraints,” said Robert Manne, president of Pacific Lumber, which are “ not

working to meet the company and its employees’ eco-nomic needs.” To this complaint, conservationists

and gov-ernmental officials responded that Pacific Lumber, which continued to operate two smaller and

much newer mills in neighboring towns, was scapegoating them for problems stemming from falling

timber prices and the company’s depletion of its old- growth redwood groves by clear- cutting.

According to Paul Mason, president of a local environmental organization, “ The lumber market is right in

the tank, and that takes a bite out of your profit margin. The company has been operating at an

unsustainable level for a number of years.” Whatever the exact cause, Pacific Lumber eventually declared

bankruptcy, and in 2008, as part of a court- ­supervised reorganization plan, it was taken over by the

Mendocino Redwood Company, a nine- year- old logging ven-ture owned by Don and Doris Fisher, the

founders of Gap. Environmentalists, state officials, and local residents were thrilled at the prospect of

Pacific Lumber Company emerging from bankruptcy free of Hurwitz and Maxxam and able to reestablish

itself as an environmentally responsible company practicing sustainable forestry. That’s because, as U.

S. bank-ruptcy judge Richard Schmidt explained, “ MRC [ is] an experi-enced, environmentally responsible

operator with a proven track record, and whose experience in operating timberlands and working

cooperatively with government regulators was uncontroverted.”

DIS CUSSION QUESTIONS
1. Does an ancient redwood forest have value other than its economic one as potential lumber? If so,

what is this value, and how is it to be weighed against the interests of a com-pany like Maxxam? Are

redwoods more important than jobs?
2. Is it morally permissible for private owners to do as they wish with the timberland they own? Explain

why or why not. What’s your assessment of Hurwitz? Is he a robber baron or a socially responsible

businessperson, or some-thing in between?
3. Were mainstream environmentalists right to try to thwart Hurwitz, or were they simply trying to

impose their values on others? Does a radical group like Earth First! that engages in sabotage go too

far, or do its ends justify its means?
4. Do we have a moral obligation to save old redwood forests? Can a forest have either moral or legal

rights? Does an old- growth forest have value in and of itself, or is its value only a function of human

interests? How valuable is a small but endangered species such as the murrelet?
5. Before its takeover by Hurwitz, did Pacific Lumber neglect its obligations to its stockholders by not

logging at a faster rate? What would be a morally responsible policy for a timber company to follow? Do

we need a new environ-mental resource ethic?
6. How would you respond to the argument that there is no need to try to save the Headwaters ( or any

other private) forest because there are already tens of thousands of acres of old- growth redwood

forest in parks and preserves?
7. Was the deal that the U. S. government and the state of California struck with Pacific Lumber a fair and

reasonable one? Did the taxpayers end up paying too much, as environmentalists think? Was Pacific

Lumber squeezed too hard? What about Scotia and its laid- off workers?

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