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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.”
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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