Houston Chron - It seems like Charles Hurwitz just can't catch a break

It seems like Charles Hurwitz just can't catch a break
By LOREN STEFFY
Copyright 2007 Houston Chronicle Jan. 23, 2007, 11:13PM

Victory seems to forever elude Charles Hurwitz.

In 1999, he hammered out an agreement with California and federal officials to preserve old-growth redwood trees while allowing his logging company, Pacific Lumber, to cut enough new-growth trees to make a profit.

The deal, known as the Headwaters Agreement, was supposed to broker peace between Hurwitz and environmental groups that opposed his company's logging operations.

More importantly, it should have been a model for how private industry can work with other groups to preserve the environment.

Last week, Pacific Lumber filed for bankruptcy, strangled by new regulations made outside the agreement.

"We were dealt a hand where we couldn't do anything," Hurwitz told me Monday. "It's a pure breach of contract."

Regional water boards, which weren't included in the Headwaters Agreement and therefore argue they aren't bound by it, ruled that runoff from Palco's logging was affecting rivers and streams in Northern California's scenic Humboldt County.
The boards imposed new restrictions.

Palco's timber harvest has fallen steadily as a result, to 145.5 million board feet in 2005 from 166.3 million in 2003, according to its annual filings with the Securities and Exchange Commission.

At the same time, the quality of the harvest shifted to lower grades of redwood and Douglas fir, which sell at a lower price.
The company wasn't making enough money to service its debt, part of which was incurred when Palco refurbished its mills for the newer growth trees as specified in the 1999 deal.

Over the years, the battle between Hurwitz and the environmentalists has grown personal. The protesters bristle at the thought of a single tree felled by Hurwitz's hand.

In a news release, Karen Pickett, director of one such group, the Bay Area Coalition for Headwaters, summed up the filing this way:

"The one thing we can look forward to ultimately is a Maxxam-free and Hurwitz-free company."

Unattractive

Then what?

What chance does Palco have for survival? It can't, under the latest environmental restrictions, produce enough lumber to turn a profit, whether it's owned by Hurwitz or someone else.

Bankruptcy may eliminate some of the company's debt, but it won't make Palco attractive to outside buyers. The threat of unending tree sittings and sabotage to logging operations makes Palco an unappealing purchase.

Hurwitz's adversaries spin a heartwarming myth about returning Palco to its days as an ecofriendly, family-run logging company.

But returning Palco to its old style of operations also returns it to the reality that left it vulnerable to Hurwitz's takeover 20 years ago. Palco was a mismanaged operation. Its executives hadn't done an accurate inventory of its timber lands in more than 30 years, and the "family" company's stock — which was traded on the New York Stock Exchange — languished.
In today's lumber industry, the margins have gotten thinner and the competition has increased. A return to Palco's past would promptly be followed by a return to bankruptcy court.

'Root of all evil'

For his part, Hurwitz has paid a hefty price for his ownership of Palco.

"This is the root of all evil for us," he said. "Everything that's bad in my business life has come out of this."

The environmental issues formed the basis for the Federal Deposit Insurance Corp.'s decade long legal battle against Hurwitz. The lawsuit involved the failure of United Savings Association of Texas, but documents released as part of a congressional investigation revealed that regulators pursued a flimsy case to extract a settlement that would have included forfeiting Palco's old-growth redwood forest.

Hurwitz won, but the government appealed. With the case headed back to court, the victory is hollow. Palco's bankruptcy represents another eroded triumph, the collapse of the Headwaters Agreement.

The cycle remains unbroken and as vicious as it was before. Hurwitz and his foes in the environmental movement seem locked in perpetual conflict.

In many of these battles, Hurwitz has been right. But as last week's bankruptcy filing shows, you can be right and still lose.

Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays.